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Key Takeaways:
Your clients look to you for guidance on a lot of financial decisions. One of the biggest decisions you may help them with is how to choose long-term care (LTC) insurance. A good way to start is by explaining one key concept—the difference between reimbursement and cash indemnity benefit models.
Why? The benefit models from which LTC benefits are paid determine who decides how the benefit dollars can be spent—the insurance company or the policy owner. Once the benefit models are clear, it’s much easier for an individual to choose the LTC coverage that best fits their needs. Also, since policies generally only offer one benefit payment model, making this decision first may help narrow down the field.
Let’s start with the reimbursement model. Once the insured meets the claim qualifications, bills and receipts are sent in each month to the insurance company. Then the insurance company reimburses the policy owner for the expenses that are covered under the policy contract—up to the daily or monthly amount of LTC benefits available.
Any expenses not covered under the policy contract must be paid for out of pocket, even if the expenses haven’t exceeded the available LTC benefit amount. Also, alternative care services, nontraditional care, and services invented in the future must be approved by the insurance company and may not be covered.
Most reimbursement policies offer two choices for reimbursement:
With a cash indemnity policy, once the insured meets the claim qualifications, the insurance company pays the full available LTC benefit amount each month. The policy owner may ask for less to be sent if not all of the funds are needed, but they’re entitled to receive the full available benefit amount if that’s what they wish to receive.
Once the claim is approved, no monthly paperwork*—such as sending in bills and receipts—is required. And LTC benefits can be used without restriction from the insurance company. For instance, one hundred percent of care can be provided by family or other unlicensed caregivers. The benefits can also be used for things like alternative care services, transportation, prescriptions, and more.
Insureds under cash indemnity plans have much more freedom over how to use their benefit check each month, and they’ll likely pay significantly less out-of-pocket for care than under reimbursement plans.
Reimbursement Benefit Model | Cash Indemnity Benefit Model | |
How to file a LTC claim |
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How to collect the monthly LTC benefit |
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What is typically covered |
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LTC benefits can be used without restriction from the insurance company to pay for a variety of expenses, such as:
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What is often not covered | Expenses that may not be covered under the policy include:
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The are no restrictions placed by the insurance company on how benefits can be used. As a result, funds can be spent on anything the policy owner wishes. Cash indemnity provides total flexibility to use LTC benefits for whatever is needed. |
There’s no one perfect LTC benefit model. Each client has their own unique circumstances to solve for, and what may be best for one client may not be the best for another. By helping each client understand the key differences between these two benefit models, you can guide them on the path to finding the policy that works best for them.
To learn more about LTC benefit models, contact the Nationwide Retirement Institute.
*Bills and receipt might be requested to help in the claims process or in recertification, which is required by law to be done at least once per year.
NFM-23636AO