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Letter To The Editor: Partnership Plans Are Geared To Short, Fat Coverage

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Phyllis Shelton writes: In response to the letter to the editor by Margie Emch in the October 2008 LTC e-Wire (Letter: Inflation option is costly), the long term care Partnership plans are more geared to short, fat coverage than a 6-year plan as the author provides.

A middle-income American will not be able to make up the difference of a significant shortfall at claim time. It is much better to do a 2-year plan with compound inflation in most cases than a 6-year plan with no inflation.

Fortunately, there are innovative ways to build in inflation protection today. An example of this for a 50-year-old would be to figure out where you want the benefit to be in 30 years and provide half of that amount today with a 2x compound rider, which will generally be less expensive than a lower amount with a 5% compound rider for life. It will take 30 years for $3,000 a month policy to reach $12,000 if using a 5% compound rider for life, whereas at $6,000 a month, a policy with a 2x compound rider will get there in 15 years.

In summary, if one says the inflation option is too costly, the question is, “compared to what?” A $5,000 monthly benefit will pay about a fourth of the cost of care in 30 years, whereas the $12,000 in my example will give them a better chance of paying for more care, combined with other savings. Of course, you would have to be sure that the Partnership state in which you are selling allows a 2x compound rider.