One thing to tell your clients about long-term care coverage

An elderly couple embraces as they look out of a window.

02/13/2024 — Key takeaways:

When discussing LTC policies with a client, start by helping them understand the differences between reimbursement and cash indemnity benefit models.
Reimbursement benefit models require more ongoing paperwork and are more restrictive.
Cash indemnity benefit models offer more flexible use of benefits and could lower or eliminate out-of-pocket expenses.

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.

How reimbursement LTC benefit models work

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:

Reimbursement to the policy owner: The policy owner can pay the care provider directly. Then they send copies of bills and receipts to the insurance company for reimbursement (again, up to the amount that qualifies under the policy).
Direct reimbursement to the care provider: The policy owner can opt for direct reimbursement to the care provider. Here, the care provider bills the insurance company directly. Then, the policy owner is billed and pays the care provider for any services not covered under the policy. However, not all care providers are willing to bill a third party. While not as flexible in how LTC benefits can be used, this benefit mode may be appropriate for people who are not good at handling money.

How cash indemnity LTC benefit models work

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.

A side-by-side comparison

	Reimbursement benefit model	Cash indemnity benefit model
How to file a LTC claim	File the claim and provide required documentation. Wait for claim approval. Complete applicable elimination period. Re-certify claim least every 12 months.	File the claim and provide required documentation. Wait for claim approval. Complete applicable elimination period. Re-certify claim least every 12 months.
How to collect the monthly LTC benefit	Pay bills. Then send copies of receipts each month to the insurance company. Wait to see what qualifies for reimbursement. Then receive a check. Qualified reimbursements are the lesser of qualifying LTC expenses covered under the policy or the maximum monthly LTC benefit. Declined expenses must be paid to the service provider out-of-pocket. Repeat this process each month.	Receive a check every month for the maximum monthly benefit (or less if the insured chooses to extend the benefit period), with no need to submit monthly paperwork. Pay your bills.
What is typically covered	Only bills specific to long-term care services are covered under the contract. Homemaker services (such as housekeeping laundry, shopping, and lawn care) may be included, but these services may have to be performed by the person providing the licensed care. Alternative care services are only covered at the discretion of the insurance company.	LTC benefits can be used without restriction from the insurance company to pay for a variety of expenses, such as: Unlimited home modifications Family members providing 100% of care Medical care and tests not covered by other insurance Prescription medicine Massage therapy Transportation to doctors and therapists Homemaker services provided by the person of the insured’s choice Any expense the insured incurs
What is often not covered	Expenses that may not be covered under the policy include: Care from immediate family members Medical care Physical therapy and massage therapy X-rays and tests Prescription medicine Certain (or numerous) home modifications Transportation	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.

It’s about the client—not the policy

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.

Visit our long-term care solutions page to help you address this top concern for clients in retirement.

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Advisor Advocate Editorial Team

Editorial Team

The Advisor Advocate editorial team is comprised of a diverse group of thought leaders and contributors across Nationwide Financial, as well as many others who provide support behind the scenes.

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