Hello all,
Was wondering your thoughts on choosing the Daily (weekly/monthly...) Benefit Amount and Inflation Protection. Basic questions indeed but worth exploring as I begin to provide quotes again after being away for several years.

I conducted a phone survey of the largest & most popular skilled care facilities in my market and the average daily cost will be about $250 starting Jan 1, 2011. Costs will be going up between $5 and $10 per day compared to '09 at the facilities I contacted.

So... in knowing that each case is different, what is the "starting point", or trend, or current philosophy that is being recommended in relation to inflation protection?
- Or, is it an impossible question to address because each case is truly too different.

Your thoughts are always highly appreciated.
Mike in Michigan

Hey Mike. You nailed it with your last statement - each case is truly too different for one answer to be the right one.

Most of my clients aren't insuring for the full cost of care. They're looking for a safety net that will cover anywhere from 60-80% of the expected daily/monthly costs, and then they'll pay the rest out of their assets. This keeps their premiums down, while giving them a reasonable amount of protection.

As far as inflation, you could get pages and pages of responses on what's right and what's wrong. and still not cover all the ins and outs. From a sheer "make sure I have enough coverage" standpoint, the 5% compound inflation rider is the only logical choice for "younger" folks. We've seen year-over-year cost increases of 2-3% for home care, and as much as 8-12% for assisted living. So, you can't buy too much inflation protection, from a pure "protection" standpoint.

But, 5% compound is expensive. The 3% compound may be a good choice for some folks under 60. It's more affordable, it's going to qualify for Partnership protection (at least here in my state), it's going to out-pace 5% simple in about 30 years, when the clients are in their 80s and 90s, and it's less expensive now. Clients 61 and older will usually get more protection from the 5% simple, but it does cost them a bit more.

As a general rule, I always start with some level of compound inflation for 60 and under, simple for 61 and older, and occasionally no inflation for men at 77 or 78 and up. Of course, I'll tweak this based on the client's specific circumstances.

It really depends upon what's right for you, based on your needs and circumstances. Good luck.

Mike,
I agree with Kpbdy and will just add the following:

It will ultimately become a balancing act between what you feel is an appropriate benefit package for your client, as to what is affordable for your client.

I'm not sure how long you've been out of the business, but if it's been a few years you probably returned to the world of "Sticker Shock".

Premiums from many major carriers over the past few years have increased substantially. 5% Compound used to be the gold standard for those 68 and younger. Today, 3% compound, 5% Simple and 5% Compound,
2 x max have become viable alternatives. Not viable because they address the true rate of inflation, but viable because they are more affordable than 5% cmp.

5 year & Lifetime benefits were also very common. Today, it's 3 & 4 years. Not because the average time of required care is less but because the shorter the benefit period, the less the premium.

With the cost of care in your area about $250/day, I would normally start with a $200/ benefit. And, if costs are going up $5-$10/day, a 5% Simple inflation rider will pretty much address that.

After that, it's up to you as to what kind of premium you & your clients feel comfortable with.

Arthur

Excellent replies - thank you very much.
Mike