One of the most important things to understand about a long-term care (LTC) insurance policy is how it will pay benefits if you initiate a claim.
There are two types of benefit payment methods: reimbursement and cash
indemnity. Each payment method can have a profound impact on you, your
loved ones and your care.
Reimbursement policies reimburse you, dollar for dollar, for actual expenses incurred. You must first pay for your care expenses out-of-pocket, and then submit receipts to the insurance carrier for reimbursement. Only expenses covered by the contract will be reimbursed.
Cash indemnity policies automatically send you a monthly cash benefit –
Cash indemnity vs. reimbursement
Let’s look at two hypothetical scenarios to illustrate how each benefit payment
method could work if you needed care. Let’s say you purchase a policy at age
60 with a:
$5,000 monthly maximum benefit
6-year benefit period
5% compound interest inflation benefit
Then at age 80, you need care and initiate a claim.
Scenario 1: Transitioning from informal care to assisted living
This scenario reveals the power of cash indemnity benefits when care starts in the home with an informal caregiver (spouse, child, etc.) – and transitions to an assisted living facility as the condition progresses over six years.
Notice how the cash indemnity policy would allow you to receive your full monthly benefit as soon as you went on claim, even if you were receiving informal care at home that didn’t result in any out-of-pocket expenses.
Scenario 2: Transitioning from assisted living to a nursing home
This scenario shows a more advanced case – going directly into an assisted living facility, followed by skilled nursing care over six years.
Again, notice how the cash indemnity policy would allow you to access more of your benefits earlier than the reimbursement policy because the cash indemnity policy is not limited to actual expenses incurred.
Why choose cash indemnity?
Unlike reimbursement policies, cash indemnity contracts don’t restrict how your benefit can be used – there’s no need to submit receipts to the insurance company or wait for an expense to be approved. Once you go on claim, your benefit is yours to spend or save however you want. Plus, the cash indemnity model doesn’t limit your monthly maximum benefit to actual expenses incurred, which means you can fully leverage your policy and not leave any benefit unused.