Inflation Riders on LTCI policies

Do you know about inflation riders on long-term care insurance policies (LTCI)?

The cost of home care, assisted living and senior living (aka, nursing home) increased by 4% to 6%, depending on the setting in 2022. There is every reason to believe that the cost of hiring professional caregivers will continue to increase over the next decades.

All insurance companies have optional riders that will increase the ‘money pool’ and the monthly benefit by an amount determined when the contract goes into force. This can be from 1% to 5%. Some insurers actually allow for an increase in the percentage in later years without any health questions. This can be helpful to keep the policy affordable in the beginning. As income increases the policy holder can increase the inflation percentage.

We recommend, however, that people buy as much inflation as possible then reduce it or cancel it later.

My 25-year-old contract started out with a 5% compounded rider on a $300,000 policy. The contract is now worth over $1,100,000. Last year, to reduce the cost, I changed the inflation protection to 3%. The contract now cost less than when I purchased it and I have enough coverage to protect my savings and I will be able to hire professional care givers and I won’t become a burden to my family.

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