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What Other Policy Features Are Available?
Inflation Protection
Most people buy long-term care many years in advance of when they may
need care. The long-term care insurance you buy today must cover the
costs of care 10, 20 or more years in the future. Inflation Protection
is intended to help maintain the value of the benefits you purchase
today so they will keep up with future increases in the cost of care.
In the past, long-term care costs in California have increased at an
annual rate of more than 5% - a faster rate than the general increase
in the cost of living for items such as food. Experts estimate the cost
of long-term care will continue to increase by 5% annually. If costs
do increase by 5 % annually, the cost of care will double every 14 years.
A day in a nursing home that costs $141 today, will cost $282 a day
in 14 years; a year's stay in a nursing home that costs about $51,465
today will cost $102,930.
Protecting against the rising costs of care is one
of the most important choices you will make. Inflation protection increases
the Daily Maximum, the Maximum Lifetime Benefit, and other benefit amounts.
If you purchase individual long-term care insurance, your insurer must
offer you at the time you purchase the policy the option to purchase
an inflation protection feature. You will be given a choice between
two ways of protecting the value of your benefits against inflation:
(1) a Built-in Inflation Protection feature that automatically increases
the value of all the policy benefits annually (using either compound
or simple interest increases) or; (2) a Benefit Increase Option.
1. Built-In Inflation Protection.
The insurer is required by California law to offer you the option of
a built-in 5% annual compound inflation protection feature that automatically
increases your previous year's Daily Maximum and Lifetime Maximum Benefit
amounts by 5%. If you decide not to purchase the built-in 5% compound
annual inflation protection feature, you will be asked to sign a rejection
of the offer. Some insurers may also offer you the option of a built-in
5% annual simple inflation protection that automatically increases each
year the Daily and Lifetime Maximum Benefits by a fixed 5% of the amounts
in your original policy.
2. Benefit Increase Option. The other
inflation protection option is called a Benefit Increase Option. This
option allows you to pay an additional premium to increase the benefit
coverage amounts at stated intervals during the life of the policy (often
referred to as guaranteed insurability or future purchase options).
There is usually a limited number of increase options offered to you
over the life of the policy. If you decide not to exercise this option
one or more times when it is offered, you will lose any chances to increase
your benefits in the future.
With built-in inflation protection, the premiums are
designed to remain level and not increase even though your benefit coverage
amounts increase each year. The increases in your benefits will continue
as long as you keep the coverage, even while you are receiving benefits.
Policies with built-in inflation 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.
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