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Is a long-term care insurance inflation protection rider worth it now?
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If you’re in the market for long-term care insurance, you may be thinking about adding an inflation protection rider amid today’s stubborn inflation issues. Inflation protection riders can be added to long-term care insurance policies to protect you from the rising cost of healthcare, so they can be a smart option to consider in many cases.
But, inflation is cooling right now. And, long-term care insurance inflation protection riders come at an additional cost. In turn, you may also be wondering whether it makes sense to pay more to add this type of rider to your policy. Here’s what the experts say about whether it’s worth adding an inflation protection rider to a long-term care insurance policy in today’s economic environment.
Compare your long-term care insurance options now.
Is a long-term care insurance inflation protection rider worth it now?
While inflation is cooling, price growth is a cyclical process, with cycles of prices heading up and then cooling thereafter. This matters because long-term care insurance is a long-term investment, so multiple inflation cycles could occur before you ever file a claim.
As such, it makes sense in many cases to consider inflation as part of purchasing a long-term care insurance policy.
“Healthcare inflation is higher than average and the average person will need care in their 80s,” says Virginia Barausky, national director of sales for The Pinnacle Group, a company that helps consumers and financial advisors plan for long-term care needs. “Inflation is a key rider when looking to protect against the cost of long-term care.”
But an inflation protection rider isn’t always the best option for addressing price growth, experts say.
“Another option is to put more premium in upfront and create a bigger benefit to start with,” says Keith Bercun, regional sales director at OneAmerica, a financial services firm.
By doing so, you may save money on your policy while benefitting from a larger death benefit and more cash value growth.
If cost is your main concern, though, it’s important to compare these options with each policy you consider. In some cases, frontloading your policy with larger benefits will be cheaper. In other cases, an inflation protection rider may be less expensive.
It’s also important to try and determine when you may need your long-term care insurance coverage as you weigh your options.
Your age should also play a role in your decision to either purchase inflation protection or front-load your policy.
“Inflation protection is especially important to those purchasing long-term care insurance in their 40s, 50s, and 60s,” says Lori Martin, CLTC, a trainer for Certification for Long-Term Care, which is an education company that certifies long-term care insurance agents. “If long-term care services aren’t needed until the individual is 80 years plus, the inflation protection rider provides crucial growth of their long-term care funds.”
“I will look at this benefit differently when assisting an individual in their 70s with long-term care planning,” says Cobb. “Designing a plan with a larger monthly benefit and lower inflation protection can be more suitable for an older person. Especially those with a lower budget for a long-term care policy.”
Chat with an expert about your long-term care insurance options today.
How to decide if inflation protection is worth it for you
If you want to determine whether an inflation protection rider is worth the extra money, here are a few factors to consider during the process:
Get quotes for policies with inflation protection
Get quotes for the type of inflation protection you’re considering. You’ll typically have the options of 5% simple inflation protection (protection that does not compound), 3% compound inflation protection and 5% compound inflation protection.
Keep in mind that simple inflation protection is based on the value of the policy. For example, if you purchase $300,000 in long-term care insurance coverage with a 5% simple inflation rider, the value of your policy will increase by $15,000 each year (which is 5% of $300,000).
On the other hand, the value of your policy can increase more over time with a compound inflation rider. However, the cost difference can be significant, so weigh the pros and cons before making a decision.
Get quotes for policies with more coverage
You may also want to consider whether frontloading your long-term care insurance policy makes more sense. For example, rather than purchasing $300,000 in long-term care insurance, you could purchase $500,000 to ensure that you’re covered even as the cost of care grows. In some cases, this may be the cheaper option of the two.
So, it can be worth asking your long-term care insurance agent for quotes on policies with higher values. While taking this route typically leads to increased premiums, a higher amount of coverage may be more affordable than the cost of an inflation protection rider.
Compare the two to find out which is your better option
After you’ve gathered both types of quotes, you should compare the two options. If you find that inflation protection offers lower premiums, then the rider may be worth it for you. If you find that purchasing higher coverage results in lower premiums, then that may be the better option.
The bottom line
The cost of long-term care is expected to rise, so it’s important to consider the impact of inflation as you shop for a policy. While an inflation protection rider can help protect against the rising cost of care, it’s not your only option. Frontloading your policy could make sense, too. As you shop, compare the cost of adding a rider to your policy to purchasing a higher coverage amount — and be sure to also consider how your age plays into the equation. Chat with a long-term care insurance specialist now.
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Homeowners looking to access a large sum of money in today’s economic climate don’t have to look too far to find it. By turning to their accumulated home equity, owners can potentially finance a major expense (or multiple major expenses) simply by using the money they already have via their home’s value.
While there are multiple ways to do this, many may be considering a traditional mortgage refinance or cash-out refinance. But in today’s unique and constantly changing interest rate climate, that could prove to be a costly mistake. Instead, right now, both home equity loans and home equity lines of credit (HELOCs) are arguably better than refinancing. Below, we’ll explain why.
Start by seeing what home equity loan interest rate you could qualify for here.
Why home equity loans are better than refinancing right now
Here are three reasons why a home equity loan may be more beneficial than a refinance now:
You’ll maintain your existing mortgage rate
The average home equity loan interest rate is 8.41% as of November 19, 2024, but the average mortgage refinance rate for a 30-year loan is 6.93%. So, on the surface, it appears that refinancing is cheaper. But that refinance rate will require you to exchange your current mortgage rate to get the new one.
That could be a costly mistake if you have a rate under 6.93%, as millions of Americans do right now. By applying for a home equity loan, however, you’ll still gain access to your equity, but you won’t need to bump your mortgage rate to get it. And if home equity loan rates drop in the future, as they have for most of 2024, you can simply refinance your loan to the better rate then.
Get started with a home equity loan online today.
You may qualify for a tax deduction
When you use a cash-out refinance, you apply for a loan larger than what you currently owe to your lender. You then use the former to pay off the latter and keep the difference as cash for yourself. Interest paid on mortgage loans is tax-deductible, but so is the interest on home equity loans if used for qualifying purposes. At that higher interest rate, you may qualify for a larger deduction (while still maintaining your current lower mortgage rate).
The average home equity amount is high right now
A combination of low mortgage interest rates during the pandemic, a drop in available inventory and a hesitation to sell now that rates are high again (amid other complex but interrelated factors) has caused the average home equity amount to soar to just under $330,000 right now. If you want to access that with a refinance, as noted, you’ll need to give up your current mortgage rate to do so. And if you want to access it via a credit card or personal loan, the restrictions will be significant. It makes sense, then, to take advantage by using a home equity loan or HELOC instead of taking a gamble with a refinance right now.
The bottom line
With mortgage refinance rates elevated, the unique feature of a potential tax deduction tied to home equity borrowing and a six-figure average equity sum available now, for many homeowners in need of financing it makes sense to skip a refinance for a home equity loan now. That said, this type of financing is tied to your most important financial asset so the decision to withdraw it from it should be carefully weighed against the risks. Consider speaking to a financial advisor or home equity lender who can answer any questions you may have before getting started.
Speak to a home equity loan lender now.
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Home equity is calculated by deducting your existing mortgage loan balance from your home’s current value. And, in today’s unique economic climate, that calculation has led to the average homeowner accumulating approximately $330,000 worth of equity.
This can be accessed in a variety of ways, with both home equity loans and home equity lines of credit (HELOCs) being two of the less expensive options. Still, your home serves as collateral in these borrowing exchanges, so it’s critical that you use the money for the right reasons or you could jeopardize your homeownership if you fail to repay all that was withdrawn.
Fortunately, in the final weeks of 2024, there are still smart ways to use this home equity, some of which are more timely than others. Below, we’ll detail three great ways homeowners can start using their home equity before January 1, 2025.
Start by seeing what home equity loan interest rate you’d be eligible for here.
3 great ways to use home equity in the final weeks of 2024
Here are three smart — and effective — ways homeowners can utilize their home equity in the waning weeks of 2024:
Home projects
Not every home project is worth utilizing home equity for, particularly those that you can afford to pay for comfortably out of your everyday budget. For other, larger ones, however, it makes sense to turn to home equity. That’s because select home improvements and repairs can qualify for a tax deduction.
In other words, interest paid on home equity loans and HELOCs can be tax-deductible if used for qualifying home projects. So if that’s your intended purpose, consider applying now. If you wait much longer, you may not get the funds disbursed in time to qualify for the tax deduction in 2024 — meaning you’ll delay the deduction until you file your next tax return in the spring of 2026.
Get started with a home equity loan online today.
Credit card debt consolidation
Credit card interest rates have been on a steady upward trend, the latest coming in recent weeks with the average interest rate soaring to 23.37%. So, if you have significant credit card debt (and many Americans do currently), it’s worth consolidating with a home equity loan or HELOC now, especially when considering that both products come with interest rates almost three times lower than the average credit card rate. This is traditionally one of the smarter ways to use home equity, but it’s particularly critical today, with credit card interest rates at a record high and with a minuscule likelihood of those rates falling.
Business opportunities
A new year could mean new business opportunities to explore, and that often requires the need for startup capital to fund these possibilities. Home equity loans and HELOCs can provide that source of funding in a much more affordable way than a personal loan, with a near 13% average interest rate, could.
And even if the need for this funding isn’t until the first quarter of 2025, it makes sense to take steps now, considering that it may be weeks until your home equity funds are disbursed. Start by ensuring your credit is in top shape. Then determine your exact financial needs and start shopping for lenders (since you don’t need to use your current mortgage lender) to improve your chances of finding the lowest rates and best terms.
Start shopping for home equity loans here.
The bottom line
Because your home is on the line when tapping into your home equity, it’s important to only utilize it for appropriate means. But in the final weeks of 2024, there are still timely and effective uses for this financing. Home repairs, debt consolidation, new business opportunities or a mix of all three could be smart reasons to use home equity now, positioning yourself for financial success into 2025 and beyond.
