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Inflation Protection and Long-Term Care Insurance: Finding the Gold Standard of Adequacy

The long-term care (LTC) insurance market has grown rapidly over the past decade. Since many individuals purchasing LTC insurance policies today may not access benefits for many years, it is important that insurance benefits keep pace with inflation. To address this issue, AARP commissioned a study to determine whether a policy with a 5 percent compound inflation option is adequate to meet future LTC costs.

In this AARP Public Policy Institute Issue Paper, the question is addressed and answered by Marc A. Cohen, Ph.D., Vice President, LifePlans, Inc.; Maurice Weinrobe, Ph.D., Professor of Economics, Clark University, and Jessica Miller, M.S., Senior Research Associate, LifePlans, Inc. who find that:

  • A 5 percent compound inflation rider is likely adequate to finance the future long-term care costs of most policyholders; in general, more than 80 percent of the costs of care will be covered by such policies.
  • Even with 5 percent inflation protection, those entering nursing homes may bear considerable out-of-pocket costs.
  • Those using home and community-based care are likely to have the full cost of their care covered. (37 pages)

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