Is it worth chosing the "compounded for inflation" option when buying long-term care insurance?

Question

Our employer is offering unum ltc insurance at a group rate. For a 47 year old, 4 yr coverage @ 4k, monthly premium is $20.30. When I chose the compounded option, monthly premium jumps to $59.10.
I called they company and they said it is compounded at 5% per year.
My other thought was to go with 8k coverage, no inflation for $44.00 per month.
Is there anyone out there who understands this stuff and would please give me any guidance?
Thank you!

Answer 1

Long-term care policies for seniors living in major metropolitan areas with high labor costs can expect to pay $167 per day for nursing home care. This translates into $61,000 per year. If a consumer purchases a policy that pays a fixed $100 per day, with an inflation rate of six percent per year, $100 per day will pay less than one-third of the daily cost in 12 years, and 14% of the cost in 24 years.

The math is easy. At six percent inflation the cost of nursing care will double every 12 years and the daily charge will become $354. In twenty-four years the same nursing charge will have grown to $708 daily. So a consumer who purchases today at age 56 a long-term care with a fixed benefit of $100 per day who requires nursing-home care at age 80 will have to pay more than 85% of the costs out of his or her own pocket.

The answer is to purchase compounded inflation protection that increases the benefit the policy will pay each year. Since health-care costs predictably will continue to inflate, the U.S. House Select Committee on Aging concluded that "without inflation protection, long-term care insurance policies are not a wise purchase."

Five percent compounded inflation protection. Rather than increasing the daily benefit by five percent of the original benefit, this option increases the benefit by five percent compounded, meaning that each successive year's benefits are increased by five percent over the previous year. The compounded option at 5% compounded per year will pay approximately $265 per day, after twenty years. This approach is the best option available, but given the historical, as well as anticipated, six percent inflation rate for long-term care costs, this plan does not keep pace with inflation.

Answer 2

You first need to consider how the plan is converted to an individual plan when you leave the company and what the premium will be, how long you expect to stay with the company, if you are able to purchase additional coverage in the future (and will that additional coverage be underwriten), the terms of the policy as to where you can receive long term care and what triggers the policy, and your chances for needing long term care. The answers to the above will greatly determine what coverage you need to get now.

At 5% compounded the 4K policy will be nearly 8K in 14 years and over 10K in 20 years. If you can afford the extra premium the compounded inflation rider is generally the better option for anyone under 70 years old.

Your chances of needing a long term care policy sometime in the future is 50%.

9.7% of nursing home residents are under age 65.

Answer 3

there is not any much less costly 24/7 nursing facility. It costs $5000 a month and up for nursing care. He can evaluate advertising some components like a house to pay for care. as quickly as his money runs out, the nursing residing house gets him eligible for Medicaid. He sounds terminal, so ask his surgeon if he has long to stay and if no longer, he would desire to get hospice care and Medicare covers that. He can not purchase any LTC coverage as a results of fact coverage must be bought till now he has medical problems or they wont be lined.

Answer 4

4k likely isn't enough coverage.

check the actual fees billed to private patients in rehab care places in your area -- i'll bet they are closer to 6k or even 7k than 4k.

if coverage is only offered in 4yr segments, the inflation bit isn't worth much [4 times 5% is only 21% total and 21% times 4k is only $840 -- 840 isn't enough to cover the likely shortfall if the beginning monthly bill is 6800]

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that said, most middle age people don't bother with LTC insurance at all. the reason it is so cheap is that almost no middle age people ever use it.

go visit any rehab or long term care home and you'll see why -- virtually their entire clientle is over age 70. [my niece works in such a business.]