How Inflation Protection Works in Long-Term Care Insurance
Inflation protection increases your long-term care benefit over time so it can better keep pace with rising care costs. Simple protection adds the same amount each year. Compound protection grows the benefit by a percentage of the prior year’s amount, which adds up faster over long periods. It raises your premium and isn’t included in every policy.
Why does it matter?
Care costs tend to rise over time, and there can be decades between buying coverage and needing it. Without protection, your benefit stays the same while costs move. The NAIC’s consumer guide calls inflation protection one of the most important features you can add to a policy, and notes that it raises the premium. (NAIC Shopper’s Guide)
What’s the difference between simple and compound?
Simple: your benefit increases by the same dollar amount each year, equal to a percentage of the original benefit.
Compound: your benefit increases each year by a percentage of the prior year’s amount, so each year’s increase is larger than the last.
| Inflation protection | Benefit at age 80 (bought at 45) |
|---|---|
| None | $250,000 |
| 3% simple | About $512,500 |
| 3% compound | About $703,000 |
Illustrative arithmetic only, using a sample $250,000 starting benefit bought at age 45. Not a typical or recommended amount. Benefits used for care, loans, or withdrawals reduce what remains.
What options are available?
With the coverage we offer, you can choose no inflation protection, 3% simple, 3% compound, or 5% compound. Your benefit grows whether or not you’re using it yet.
Who might want it?
The longer the time between buying and needing care, the more inflation protection matters, which is why it’s often most relevant for younger buyers. People buying later sometimes choose a smaller increase, or none, to keep premiums lower. A licensed agent can compare options side by side.
Staying Power is a licensed insurance agency that compares inflation protection options side by side.
To see how it would work for you, answer a few questions. See also How Much Long-Term Care Insurance Do I Need?.
Related reading: What Determines Your Long-Term Care Insurance Premium? and How Does Long-Term Care Insurance Work?.
Frequently asked questions
Does inflation protection cost more?
Yes. It raises your premium, and compound protection generally costs more than simple.
Can I add inflation protection later?
It’s typically chosen when you buy. Ask your agent about the options for the coverage you’re considering.
Is 5% compound always the best choice?
It grows the fastest but costs the most. The right choice depends on your age, budget, and other assets.
