Navigating Inflation Protection in Long-Term Care Insurance

As more individuals recognize the importance of securing Long-Term Care Insurance (LTCi) earlier in life, financial advisors have a growing opportunity to guide clients through designing plans that will serve them well into the future. One critical factor to address is inflation protection, which helps shield clients from the rising costs of care over time. Here’s how you can approach this conversation with your clients and help them make informed decisions about their LTCi policies.

Why Inflation Protection Matters

LTCi is often purchased 20 to 30 years before benefits may be needed, making inflation protection a key component of any well-designed policy. Without it, the value of a client’s benefits could erode, leaving them vulnerable to increased costs. Inflation protection riders ensure the policy’s benefits grow over time, preserving purchasing power and offering peace of mind.

Questions to Ask Your Clients

1. What are your long-term care preferences?
   Do they anticipate using home care, assisted living, or nursing facilities? Understanding their expectations can help guide rider selection.

2. What is your risk tolerance?
   Are they comfortable with a higher cost for potentially greater protection, or do they prefer a more affordable option that may still provide adequate coverage?

3. What is your budget?
   Balancing affordability with protection is crucial. Clients need to understand how inflation protection impacts premiums and future benefits.

4. How do you feel about current trends in long-term care costs?
   Sharing insights into cost trends can help clients contextualize their decisions and align their choices with realistic expectations.

3% or 5% Compound Inflation Protection?

The choice between 3% and 5% compound inflation protection is one of the most common decisions clients face. Here are some considerations to help them decide:

• 5% Compound Inflation Protection:
  Traditionally, this was the gold standard due to its ability to maximize the potential pool of benefits. However, it comes at a higher cost, and with today’s slower growth in care costs, it may exceed actual needs.

• 3% Compound Inflation Protection:
  A more cost-effective option that aligns with current trends, such as the average five-year annual growth of facility care at around 4% and home care at just above 1%. For many, this provides a balanced level of protection without overpaying.

Helping Clients Protect Their Assets

Inflation protection isn’t one-size-fits-all. Some clients may prioritize affordability, while others value the reassurance of higher benefit growth. Financial advisors should:

• Educate clients on cost trends and how inflation protection riders work.
• Explore alternative solutions, such as hybrid life and LTC policies, which may include inflation protection and offer additional flexibility.
• Customize recommendations based on the client’s priorities and long-term goals.

Partnering for Success

Designing an LTCi plan that meets your client’s needs requires both expertise and resources. Collaborate with your LTCi sales representatives or product specialists to create tailored solutions that balance affordability and comprehensive protection.

The Bottom Line

Helping clients navigate their LTCi options ensures they are well-prepared for future care needs while protecting their financial security. By asking the right questions and presenting clear, data-backed choices, you can build trust and strengthen your advisory relationships.