- Inflation Protection
An optional benefit feature designed to help preserve the value of the daily or monthly benefit amount. Different LTC insurance products offer various inflation protection (IP) options, including, but not limited to, the following:
• Automatic Compound IP – annually, the benefit amount automatically increases by a specified percentage of the prior year’s benefit amount. The cost of such increases is built into the initial premiums, and premiums do not increase as a result of such benefit increases. Most carriers offer a 5% compound inflation protection option and may offer other options (e.g., 3% or tied to the Consumer Price Index).
• Automatic Simple IP – annually, the benefit amount automatically increases by a specified percentage of the original benefit amount. The cost of such increases is built into the initial premiums, and premiums do not increase as a result of such benefit increases.
• Guaranteed or Future Purchase Options (GPO or FPO)– periodically (typically annually or triennially), the insured is offered an option to purchase additional benefits without providing evidence of insurability, but at attained age rates. Such increase offers are usually designed to increase the benefit amount by 5% compounded annually. While premiums for GPO/FPO coverage typically start out much lower than either of the other two options, if one accepts all increase offers, the cumulative lifetime premiums are likely to be higher with GPO/FPO before one reaches age 70. Also, some policies provide that if you skip more than two increase offers and then want to increase benefits at a later date, you must provide evidence of insurability.
• Capped IP – this option may be combined with any of the above options, and provides either that the benefit amount will only increase to a specified multiple of the original benefit (e.g., until the benefit doubles) or that inflation increases will stop as of a specified age.
Traditionally, IP increases affect both the Daily/Monthly Benefit Amount and the Lifetime Maximum Benefit. However, some newer LTC products and/or linked Life/LTC policies increase the Daily/Monthly Benefit Amount without increasing the Lifetime Maximum Benefit.