Guide
Inflation Protection Riders on Hybrid Long-Term Care Insurance Policies
An inflation protection rider is a key feature on a hybrid long-term care policy because it helps your benefits keep pace with the rising cost of care. As long-term care costs climb with inflation, the purchasing power of your benefits can shrink without it. For a sense of what care costs today, see the federal government's overview of long-term care costs.
Adding an inflation protection rider to your hybrid policy makes your benefits grow at a specified rate, so your coverage can keep up with the rising cost of care.
There are several types of inflation protection riders:
- Simple inflation protection: Increases your benefits by a fixed percentage each year, typically 3% or 5%. The increase is based on the original benefit amount and does not compound.
- Compound inflation protection (most recommended): Also increases your benefits by a fixed percentage each year (usually 3% or 5%), but the increase compounds, so the benefit grows exponentially over time.
- Indexed inflation protection: Ties some of your benefit growth to an index, either the CPI or the S&P 500. Future gains are the hardest to estimate with this option, and it generally isn't recommended for conservative investors: when the market is weak or down, your benefits may not grow at all.
- Future purchase option or guaranteed purchase option (least recommended): Lets you increase coverage at set intervals (e.g., every three years) without proving insurability. However, the premium for the added coverage is based on your age at the time of the increase.
This chart shows how a $200,000 initial benefit grows over 20 years with different inflation protection riders:
| Year | No Inflation Protection | Simple 3% | Compound 3% | Simple 5% | Compound 5% |
|---|---|---|---|---|---|
| 0 | $200,000 | $200,000 | $200,000 | $200,000 | $200,000 |
| 5 | $200,000 | $230,000 | $239,818 | $250,000 | $255,256 |
| 10 | $200,000 | $260,000 | $268,783 | $300,000 | $326,850 |
| 15 | $200,000 | $290,000 | $320,714 | $350,000 | $414,171 |
| 20 | $200,000 | $320,000 | $358,603 | $400,000 | $530,663 |
Values in the chart are approximate and for illustration only.
When considering a hybrid long-term care policy, think about how inflation could affect your future care needs. An inflation protection rider gives you confidence that your benefits will keep up with the rising cost of care. Compare the different types of riders, and talk with a financial advisor or insurance professional to find the best option for your situation.
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