How does the cost-of-living rider work?
The cost of living rider is one of the most important parts of a long term care policy. When you buy a hundred dollar a day benefit, that means you are going to qualify for three thousand dollars a month benefit should you become ill and need long term care. The problem is that twenty years down the road if you don't have an inflation factor or inflation rider in your policy the policy will still be a hundred dollars a day benefit. Twenty years down the road a hundred dollars a day may only buy thirty or forty dollars a day of current benefits. So insurance companies in their infinite wisdom figured out that they can put an inflation protection device in the policy and the way almost every insurance company that sells long term care insurance handles this is that every year on the anniversary of the policy, lets say for example your policy is approved on April 1st, April 1st the following year your policy will automatically increase five percent compounded. At the end of ten years your hundred dollar a day benefit is one hundred sixty dollars a day and in twenty years it is almost two hundred fifty dollars a day benefit. The premium of your policy does not increase because you have an inflationary benefit. You pay a higher premium when you initially buy the policy, but once you have this inflation rider, the benefit continues to increase every year usually with no cap. That means that if you live thirty years that benefit could go to a very high number.
