Retirement & Financial Planning Report

If you’re thinking of applying to enroll in the Federal Long Term Care Insurance Program—which many employees not currently enrolled consider as they have retirement in sight—one main consideration will be inflation protection.

The program offers two types of inflation protection. One, called automatic inflation protection, increases the payable benefit annually by 3 percent (for purchased since October 2019; there previously was a choice of 4 or 5 percent).

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The other option is called the future purchase option. Every two years, those choosing that option will have the opportunity to buy additional coverage, with the increase based on the actual change in a medical inflation index over that period.

The difference in price—up front, at least—can be substantial, possibly making the future purchase option attractive to those who believe they want LTC coverage but who are concerned about the price.

However, the future purchase option over time can cost an enrollee as much if not more than the automatic inflation feature. Under the automatic feature, premiums are fixed for life at the age of purchase. Under the future purchase option, those choosing to buy additional coverage when given the opportunity will have to pay higher premiums, not only based on the higher dollar amount of coverage they are buying but also based on their age at the time of the new purchase.

Those choosing the future purchase option can of course decline to buy the additional coverage. But they should be aware that over the potential many years between the initial purchase and the time they will need the benefit the value of the benefit may have eroded significantly.

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