Compound inflation in long-term care and similar policies is a benefit feature that increases the policyTMs daily or monthly benefit amount each year by a fixed percentage, applied on a compounded basis. For example, a 3 percent compound inflation rider grows benefits by 3 percent of the new, higher amount each year, not the original benefit. Over long periods, compound inflation can significantly increase available benefits, helping them keep pace with rising care costs. However, compound riders also substantially increase premiums relative to level or simple inflation options, especially at older issue ages.

Advisors evaluate compound inflation options when designing LTC or hybrid policies, comparing projected future benefits against historical and expected care-cost trends. They often recommend compound inflation for younger clients who have many years before potential claims but may consider lower percentages or alternative designs for older buyers to keep premiums affordable. Illustrations show how benefits grow over time under different inflation choices. Understanding compound inflation helps advisors explain cost-benefit tradeoffs and tailor coverage so that future benefits are meaningful without overstraining client budgets.