Do long-term care insurance benefits keep up with inflation?
Inflation has been a hot topic over the past few years, and for good reason. Prices have been rising faster than they should in a healthy economy. Food, housing and general goods and services aren't the only areas where prices are climbing. Long-term care costs are also significantly higher now than they were just a few years ago.
That, in turn, begs the question: Do long-term care insurance benefits keep up with inflation?
After all, when you invest in a long-term care insurance policy, you're doing so to solidify access to the care you may need in the future. And, if your policy's benefits don't keep up with inflation, those benefits may not be enough to pay for your care.
Purchase long-term care insurance now to make sure you receive the care you deserve later.
Do long-term care insurance benefits keep up with inflation?
"Inflation, or the increase in prices over time, is something that has always existed," says Ronnie Thompson, investment advisor representative and owner of True North Advisors.
Thompson says that over time, your long-term care insurance benefit amount can deteriorate from inflation, but it doesn't have to. "Many long-term care benefit providers offer protection against inflation through cost-of-living riders that can be added" to your policy.
Your cost-of-living rider options
The cost-of-living rider usually comes with options. Thompson says that in most cases, "these riders have a 3% or 5% growth rate on the benefit amount each year to keep pace with inflation." You also have the option to have your benefit amount "grow at a simple or compounded growth rate," according to Thompson.
If you choose the simple rate option, your benefit amount will grow at a fixed 3% or 5%, whichever you choose. So, Thompson explained, if your benefit amount is $100 a day, the daily benefit amount will grow by a fixed $3 or $5 per day each year.
But there's a tradeoff for the higher growth potential associated with the compounding growth option. "Simple growth will be less expensive than compounded growth," Thompson says.
Purchase a long-term care insurance policy that keeps up with inflation now.
What about hybrid life insurance with long-term care?
It's important to keep in mind that while long-term care insurance and hybrid life insurance with long-term care may offer similar coverage, they're two completely different types of insurance policies.
"Some life insurance policies have a death benefit that can be used for long-term care needs," Patrick Simasko, elder law attorney and financial advisor at Simasko Law, says. But, these benefits aren't likely to keep up with inflation.
That's because hybrid life insurance with long-term care only provides a percentage of the death benefit to cover the cost of long-term care and would not have a cost-of-living adjustment.
Other factors to consider when shopping for long-term care insurance
Whether or not your long-term care insurance benefits keep up with inflation is an important consideration, but it's not the only factor to consider when you purchase a policy.
Here are some other important aspects of long-term care insurance you should compare while shopping for a policy:
- Other riders: Riders add perks to your long-term care insurance policy, and the cost-of-living rider isn't the only one to consider. Other popular long-term care insurance riders include spousal benefits, survivorship, return of premium and cash benefits. Consider how each of these may help you achieve your long-term care goals as you shop for your policy.
- Location requirements: Some long-term care insurance policies only pay for your care if you move into a nursing home or assisted living facility. That could pose a problem if you want to age in place. The good news is that there are plenty of policies that will cover your care whether you're at home or you move into a facility. Just be sure you know what each policy's coverage is before purchasing one.
- Care providers: If you want to age in place, family caregivers may be part of your plan, but some long-term care insurance companies only pay formal caregivers. If you want your policy to pay your friends and family to care for you, make sure it covers both formal and informal caregivers before you sign up.
- Coverage amount: Whether or not your long-term care insurance policy keeps up with inflation won't matter if you don't have enough coverage in the first place. Consider how much care you might need and how much money that care costs. Then, build a plan around the most accurate estimates you can find.
Find a long-term care insurance policy that fits with your plans today.
The bottom line
Long-term care insurance doesn't always keep up with inflation, but it can. By adding the cost-of-living rider when you purchase your long-term care coverage, you can make sure your benefit grows alongside inflation. That way, you can rest assured that your policy benefits won't lose buying power over time.
