Another important feature to include in a long-term care insurance policy is automatic compounded inflation protection. This is one of the distinguishing features of a Partnership policy and also the inflation protection is a valuable benefit regardless of whether the policy is a Partnership policy.
Inflation protection increases your benefits each year your policy is active. Under the Partnership, the premium stays level and does not automatically increase even though the benefits increase on an annual basis. However, it is possible that an annual premium increase could be implemented by the insurance company affecting all like policyholders.
If you purchase a regular long-term care insurance policy, check to make sure it contains automatic compounded inflation protection. A policy paying out $200/day could be worth less 20-30 years from now if the benefits were not inflated. If the benefits were not inflating each year, you could have a substantial out-of-pocket expense to make up the difference between the actual charge and what the insurance policy will pay.
The Deficit Reduction Act (DRA) requires Partnership policies sold to those individuals under the age of 61 provide compound annual inflation protection. The amount of the benefit is left to the discretion of individual states. South Dakota's minimum is 3 percent or equal to the Consumer Price Index. Policies purchased by individuals who are over the age of 61, but not yet 76, must include some level of inflation protection. Individuals purchasing policies when 76 and older must be offered inflation protection, but these consumers are not required to choose inflation protection.