John Hancock Leading Edge Long Term Care Insurance - Pt. 2

“Leading Edge” Part 2

John Hancock policy is the leading edge in long term care insurance products. The new policy features built-in, compound inflation protection linked to the Consumer Price Index.

This is a move in the right direction. In most other policies, inflation riders give you a choice of 1,2,3,4 or 5% simple or 5% compounded. You can decide which one is best for you, depending mostly on your age and how much you could self-insure if long term care costs sky-rocketed. If you are under the age of 70, it would seem that the best inflation rider would be 5% compounded, just in case.

So, what about pegging the compound inflation protection to the Consumer Price Index? Well, in today’s economy, it’s a better choice than a simple % inflation rider, but not as good as the compounded 5% .

Why is that?

Well, because the “Leading Edge” policy does not peg it’s inflation protection to the real-world inflation occurring within the long term care/medical sector. Each sector has differing inflation indexes. In 2004 the long term care/medical sector inflation index was at about 6%, and from August 2005-August 2006 was 4.3%, well above the current 2006 CPI of 3.7%

Add to that concerns that the CPI is under-reporting the real increase in prices by over a full percentage point, and you can see why it would have been better to peg the policy’s inflation protection to the medical sector CPI, not the national yearly average CPI.

What does this mean for the consumer? Inflation in the medical sector has long been rising above the CPI, and will likely continue to do so. Especially when we consider that long term care costs are labor intensive and cannot be “out-sourced”. Some economists have projected that the medical sector will average 1.5% above the national CPI. The only way that a consumer could hope to cover all of their long term care costs with any insurance policy would be to buy a higher daily benefit amount than what is currently being charged for actual long term care in the local area in which they wish to reside. Then add a 5% compounded inflation rider, and hope that we don’t see 6% inflation or higher in the medical sector again.

If you buy a policy with a built-in inflation protection pegged to the CPI, you will probably want to buy an even higher daily benefit amount. It all fairness, it may be more cost effective this way since the inflation protection is not a pricey add-on. In any case, you’ll want to ask your Buyer’s Advocate at https://prepsmart.com/form/advisory.html.

Check all your options with your Buyer’s Advocate.

Now - Back to the Leading Edge…

Continue to Part 3

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