To say that there are many variable options in Long Term Care insurance (LTCi) is a gross understatement. With this blog, I will attempt to explain the differences between a reimbursement type, indemnity, or cash plan.
Essentially, no LTCi policy will pay until the beneficiary meets the basic criteria of not being able to perform at least 2 of the 6 activities of daily living (ADLs) or suffering from a cognitive impairment. Then, typically a waiting period has to be met. If I’ve lost you there, please give me a call and we will start with the basics.
However, once benefits are triggered and payments begin, the money starts flowing different ways depending on your specific policy. One of the more common types is a reimbursement policy. You have purchased a “pool of money” that can be used to pay for care and other qualifying expenses. For example, Mr. Jones needs a home health care aide to come in for 4 hours per day to help him get up, toileted, bathed, dressed and fed first thing in the morning. The home health care agency bills him at $15 per hour or $60 for that time period. Even though his policy covers home health care up to $100 per day, he will be reimbursed the cost of care, $60. Please note that some policies offer a daily maximum benefit, some offer a weekly maximum while others offer a monthly maximum benefit.
If Mr. Jones had an indemnity policy, and Mr. Jones had $60 in qualified expenses that day, his policy would pay out the full $100. However, if Mr. Jones does not need care on Saturday because his daughter can help out, there is no benefit paid for Saturday.
With a cash type policy, once Mr. Jones has been certified as suffering the loss of 2 of 6 ADL’s or that he has a cognitive impairment and has satisfied any elimination (waiting) period, he would receive $100 each day or in the case of a monthly benefit, $3,000 each month regardless of whether any money was spent for care or not. The big advantage of a cash plan is that it is the least restrictive and most flexible and can provide benefit dollars to help cover expenses not normally covered by traditional LTCi.