LONG TERM CARE 13
California Department of Insurance
Protecting California Consumers
Toll Free 800-927-HELP
protection cost considerably more initially,
since they automatically include the annual increases in benefits
you need to keep pace with inflation. Agents must show you
an illustration of the effect of inflation on the cost of
care, and how the benefits of a policy with and without inflation
protection compare to the cost of care over time.
Example
If you choose a policy without inflation protection with
a $100 Daily Maximum and a Maximum Lifetime Benefit of $36,500,
your policy will only pay $100 a day even if the daily cost
of care has increased to $200 and the cost of one year of
long-term care has increased to $73,000 in fourteen years.
If you choose Built-in 5%.
Compound
Inflation Protection, the Daily Benefit will be $200 a day
and the Maximum Lifetime Benefit will be $73,000 in fourteen
years. If you choose Built-in 5%.
Simple
Inflation Protection, the Daily Maximum Benefit will be $170
and the Maximum Lifetime Benefit will be $62,050 after fourteen
years. Remember: the cost of long-term care will double every
14 years if inflation continues at the current rate of 5%
and your income is unlikely to keep up with inflation after
retirement. In most cases, you will be better off purchasing
a policy with a lower Daily Maximum Benefit plus 5% compound
inflation protection than selecting a policy with a higher
Daily Maximum Benefit with no built-in annual inflation increases
in benefits. This is because you are paying a higher premium
in the early years for a higher daily benefit than you need,
and as the years go by the benefit continues to decrease in
relation to the cost of care. However, before you make a decision,
you might want to consult with a financial planner, an attorney,
a HICAP counselor or a family member. With the Benefit Increase
Option, your premium will increase each time you choose to
accept the insurer's offer to increase the coverage amounts.
The premium increase for each benefit upgrade will be based
on the amount of coverage added and your age at the time you
exercise the Benefit Increase Option. Because rates for older
individuals are significantly higher and you will be older
when each upgrade is offered, each Benefit Increase Option
you accept will result in a larger premium increase than the
prior offers. The advantage of the Benefit Increase Option
is that the initial premium you pay for the policy will be
much lower than if you choose the Built-in Inflation Protection
Option. However, in the long run, you may end up paying more
in total premiums to protect your benefits against inflation
protection because of the additional premiums you must pay
to purchase each Benefit Increase Option. And, as you get
older and the premiums for the benefit upgrades get larger
with each offer, you may not be able to afford the offer to
upgrade your benefits unless your income increases significantly
in retirement or you have substantial savings. In the long
run, however, policies with built-in inflation protection
are probably more cost-effective and the premium payments
more predictable than the benefit increase option.
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