Will payouts keep pace with inflation?

Only if you pay for inflation protection - and you should. It is crucially important that if you purchase LTC insurance, you make sure your policy includes an annual inflation adjustment rider. It will do you little good to buy a policy today that has a $200 daily benefit if the cost of care rises to $400 a day or more in the future. The inflation rider will increase your daily benefit coverage by a set amount each year.

To protect yourself, buy a policy with a benefit that includes a 5% compound inflation rider. Be careful: Don't go for "simple" interest. Inflation grows at a compounded rate. In 20 years, a $100 daily benefit would turn into $200 with 5% simple interest. Compounded, the benefit would be $265.