The following is a reformatted version of an article published in National Underwriter Life & Health Magazine Aug. 3, 1998.
Clients who buy long-term care insurance without inflation protection are placing a big bet on the stability of long-term care prices.
Refusing inflation protection may make sense for customers over age 75 and younger customers who expect other assets to grow enough to compensate for erosion in policy benefits, experts said.
Inflation protection “is a very expensive option,” said Thomas Riekse Sr., president of the Heartland Group, Libertyville, Ill.
“It may be that an inflation rider makes the cost prohibitive,” agreed Robert McLellan, senior vice president of marketing at United Insurance Group, South Lyon, Mich. “Something is better than nothing.”
But the experts also agreed that agents who let clients reject inflation protection should be certain the clients-and the clients’ families-understand what they are doing.
Partial coverage of long-term care costs “does make a difference,” said Kim Purnell, a regional marketing director in the Palm Bay, Fla., office of Bankers United/Aegon. “But to me, seeing clients without enough coverage is a gut-wrenching feeling.”
“Only a fool would buy a policy to provide long-term care that does not provide for inflation protection,” Richard Alexander, a San Jose, Calif., trial lawyer, wrote in a report on long-term care insurance fraud.
Mr. Alexander said those best suited for long-term care insurance are middle-income people who have too many assets to qualify for Medicaid but too little cash to feel comfortable about paying for long-term care out of their own pockets.
LifeSpans, a Waltham, Mass., research firm, estimated in 1995 that private long-term care policies cover 1.5 million of the 35 million U.S. adults who are over age 65.
Typical annual costs for a policy that pays a benefit of $100 per day range from $250 for a 40-year-old who rejects inflation protection to $5,600 for a 79-year-old who buys inflation protection, according to the Health Insurance Association of America, Washington.
Insurers offer several ways for customers to protect themselves against inflation. Some customers prepare by buying more coverage than they think they need without adding any inflation protection.
Insurers also offer a choice of plans with 5 percent simple interest and 5 percent compound interest. The simple-interest option increases premiums by about 50 percent, and the compound interest option doubles the premium, agents said.
Some companies give policyholders the right to buy additional coverage over time on a guaranteed-issue basis at market rates. That provision may be a bad choice for clients who will eventually be living on fixed incomes, agents said.