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Long-term care insurance (LTCI) is a type of insurance that helps individuals pay for the long-term care services they may need later in life, such as nursing home care, home health care, or assisted living. When shopping for long-term care insurance policies, one of the factors to consider is whether or not the policy comes with inflation protection, and if so, whether or not to buy-up for more coverage.

First, let’s define inflation protection. Long-term care insurance policies with inflation protection are designed to grow with the cost of care over time. This is important because the cost of care increases each year due to inflation, and without inflation protection, a policyholder may not have enough coverage to pay for the care they need years down the road. Inflation protection typically comes in two forms: simple inflation protection and compound inflation protection.

Simple inflation protection increases the policy’s benefit amount by a fixed percentage each year, usually between 3% and 5%, regardless of the cost of care. Compound inflation protection increases the policy’s benefit amount by a percentage each year that is based on not just the original benefit amount, but also the accumulated inflation from previous years. For example, if the policy has a 5% compound inflation protection and the cost of care goes up by 5% each year, the policy’s benefit amount would double in about 14 years.

Without inflation protection, a long-term care insurance policy’s benefit amount will remain the same throughout the life of the policy. This may seem like a good way to save on premiums, but it can be risky because the cost of care will almost certainly rise over time due to inflation. As a result, a policyholder without inflation protection may need to pay for some or all of their care out-of-pocket, even if they have a long-term care insurance policy.

If you decide to purchase a long-term care insurance policy with inflation protection, you may also have the option to buy-up for more coverage. This means you can increase the inflation protection on your policy so that it grows with the cost of care even faster. However, buying-up for more coverage will also increase the cost of your premiums.

In conclusion, long-term care insurance policies with inflation protection can provide peace of mind by helping to ensure that you have enough coverage to pay for your care in the future. Without inflation protection, your benefits may not keep up with the rising cost of care. If you do decide to purchase a policy with inflation protection, consider buying-up for even more coverage to keep pace with inflation even faster.