Inflation Protection in Long-Term Care Insurance: A Comprehensive Guide

Shawn Plummer

CEO, The Annuity Expert

It’s crucial to think about your long-term well-being, especially regarding healthcare. You might ask, “How can I protect my assets from rising healthcare costs?” Excellent question. The answer is long-term care insurance with inflation protection. While traditional long-term care insurance provides a safety net, inflation protection takes it further by ensuring that the benefits you receive are relevant, even as the cost of care rises.

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What Is Inflation Protection in Insurance?

Inflation protection in insurance is a rider or feature that adjusts your benefit amounts to keep pace with inflation, effectively preserving the purchasing power of your policy. In the context of long-term care insurance, it adjusts the daily or monthly benefit and the maximum benefit pool as the cost of healthcare services increases over time.

Example: Imagine you have a long-term care policy that pays out $200 a day for nursing home care. In a decade, the same care could cost $300 a day. With inflation protection, your insurance benefits would adjust to cover these increased costs.

Inflation Protection

How Does Inflation Protection in Insurance Work?

Generally, there are two ways inflation protection operates:

  • Cost of Living Adjustment (COLA): Your benefits increase annually based on a predetermined percentage.
  • Inflation Rider: You have the option to increase your benefits periodically, but your premiums will also rise.

Example: Let’s say you opt for a 3% COLA. If your current daily benefit is $200, it would automatically increase to $206 the following year, $212.18 the year after, and so on.

Who Needs Inflation Protection in Insurance?

Inflation protection benefits younger policyholders or those planning far ahead for their long-term care needs. This feature ensures that the value of their coverage remains consistent over decades.

Example: Sarah, 45 years old, buys long-term care insurance today. She will likely not use it for another 20-30 years. By adding inflation protection, Sarah can rest easy knowing her policy benefits will be relevant when she needs them.

Inflation Protection Insurance

Why Do You Need Inflation Protection?

Inflation protection is not merely a luxury; it’s an essential part of long-term financial planning. Without it, the value of your long-term care benefits could erode over time, leaving you with a significant financial burden when you need care the most.

Example: John did not opt for inflation protection when he bought his policy 20 years ago. Now, at 75, he finds that his daily benefit covers only half his care costs. Had he chosen inflation protection, he wouldn’t be facing this shortfall.

The Various Avenues for Protection

Traditional Long-Term Care Insurance

This is the standard form of insurance that pays for long-term care. Adding an inflation protection rider to this policy will ensure that the benefit amount keeps pace with inflation.

Example: Rachel bought traditional long-term care insurance and added a 3% COLA rider, ensuring her benefit amount increases yearly.

Life Insurance with Long-Term Care Benefits

Some life insurance policies offer long-term care riders. These hybrid products provide a death benefit and can also pay for long-term care.

Example: Mark has a life insurance policy providing long-term care benefits. If Mark needs long-term care, the cost will be deducted from the policy’s death benefit, safeguarding his savings.

Long-Term Care Annuity

A long-term care annuity is a financial product designed to provide regular payments to cover long-term care costs, generally with some inflation protection.

Example: Emily invested in a long-term care annuity that guarantees income for her care and has an inflation protection feature to adjust the annuity income over time.

Long-Term Care Insurance Inflation Protection

Next Steps

Inflation protection in long-term care insurance isn’t just a checkbox to tick off—it’s a critical element of ensuring that your policy truly stands the test of time. It preserves your policy’s value, protects your assets, and brings peace of mind. Whether through a traditional long-term care insurance policy, a hybrid life insurance product, or a long-term care annuity, ensure you’re safeguarded against the inevitable rise in healthcare costs. After all, regarding your health and financial well-being, you deserve nothing less than full-fledged protection.

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Frequently Asked Questions

Is life insurance inflation protected?

Typically, traditional life insurance policies do not come with built-in inflation protection. However, some policies offer riders or other options to adjust benefits over time. Hybrid life insurance policies with long-term care benefits may offer some level of inflation protection for the long-term care portion.

What happens to insurance during inflation?

During inflation, the real value of fixed insurance benefits can erode, making payouts insufficient to cover costs. Some policies offer inflation protection riders to adjust benefits, but without such features, your coverage may not fully meet your needs as prices rise.

Do long-term care policies adjust for inflation?

Long-term care policies may offer optional riders that protect against inflation. These adjust benefits to keep pace with rising costs. However, not all policies automatically include this feature, making it essential to opt for it to maintain your coverage’s purchasing power.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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