Which type of inflation protection is typically offered by LTC plans?

Long-term care (LTC) plans often include inflation protection that is designed to help policyholders keep pace with rising costs associated with care over time. The correct answer indicates that both simple and compound inflation protection are typically offered.

Simple inflation protection increases the benefit amount annually by a fixed percentage, ensuring that the value of the policy does not diminish significantly due to inflation. This type of protection provides a clear and straightforward increase, which may be sufficient for some individuals depending on their expectation of how costs will rise.

On the other hand, compound inflation protection also increases the benefit amount, but does so on a compounded basis. This means that each year's increase is calculated based on the previous year’s total benefits, leading to potentially much larger increases over time compared to simple inflation protection. This is particularly important for long-term care, as medical costs can escalate significantly with inflation, and having a compounding option can provide greater financial security for policyholders.

Both of these inflation protection types are generally included in LTC insurance plans to ensure that, when benefits are needed, they will be adequate to cover the costs of care, which is vital given the unpredictable nature of healthcare costs over an extended-duration care period.