Which statement BEST distinguishes 3% SIMPLE versus 5% COMPOUND inflation-protection riders on a long-term care insurance policy?
Explanation
Inflation-protection riders are critical to long-term care insurance because LTC costs have historically risen 4-5% per year and benefits paid 20+ years after purchase can otherwise become inadequate. A SIMPLE inflation rider applies the percentage to the ORIGINAL daily benefit each year — linear growth: a $200/day benefit with 3% simple becomes $260 after 10 years and $320 after 20. A COMPOUND inflation rider applies the percentage to the PRIOR YEAR's benefit — exponential growth: a $200/day benefit with 5% compound becomes about $326 after 10 years and about $531 after 20. California Insurance Code §10232.9 requires LTC insurers to OFFER 5% compound inflation, and California Partnership for Long-Term Care policies generally REQUIRE 5% compound for buyers under age 70. Options A, B, and C are factually incorrect.
Law Reference: California Insurance Code §10232.9 (LTC inflation protection); §10350 et seq. (DI)Practice all 315 questions free — no signup required.
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