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If you buy your coverage 20, 10 or even five years before you use it, the benefit amount you choose will almost certainly be too low to cover the increased costs of care. That is why most plans offer inflation protection. The Federal Long Term Care Insurance Program (FLTCIP) offers the choice of a 4% automatic compound inflation option, 5% automatic compound inflation option, or a future purchase option.
Automatic Inflation Option
An automatic inflation option means that the value of your insurance will increase each year by a set rate (e.g., 4% or 5% annually). The initial premiums are higher because you are pre-funding automatic future benefit increases that are designed to help keep pace with inflation.
Be sure you know the set rate and if the increase is simple or compound. A compound increase provides the most protection.
Future Purchase Option
A future purchase option allows you to choose to increase your benefits periodically. Each time you buy additional coverage, your premium will go up. If you accept the option regularly and haven't become eligible for benefits, you do not have to show proof of good health.
However, if you decline the option a certain number of times — even once with some plans — you may have to provide medical information satisfactory to the insurance company to have access to the inflation increases again.
Your initial premium is lower than the automatic inflation option under this option, but it will increase significantly if you take a number of these inflation offers.
Most plans increase your benefits and premiums only if you accept the offer when it is presented. The FLTCIP increases them unless you decline the offer.