The choice of benefit model for long-term care (LTC) plans is one of the most important decisions your clients seeking coverage will make. But there are many myths and misunderstandings in the marketplace that could prevent them from choosing the model that’s right for them — and in some cases, may even discourage them from obtaining any LTC coverage at all. This guide will help you bust those myths.
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Long-term care benefit models
Reimbursement policies
Should the insured meet LTC claim qualifications, bills and receipts are sent in each month to the insurance company. A reimbursement will be made each month for only the approved expenses under the policy contract, up to the daily or monthly amount of LTC benefits available.
Any expenses not covered under the policy must be paid for out of pocket, even if the expenses have not exceeded the available LTC benefit amount.
Cash indemnity policies
Should the insured meet LTC claim qualifications, the insurance company pays the full available LTC benefit amount each month. The policyowner may ask for less to be sent if not all of the funds are needed, but they are entitled to receive the full available benefit amount if that is 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.
LTC myths and realities
Myth:
Cash indemnity benefits above the HIPAA per diem amount are taxable.
Reality:
Cash indemnity benefits are not taxable if the benefit amount received is equal to or less than the HIPAA per diem. If LTC expenses exceed HIPAA and the LTC benefit amount received is no more than the cost of LTC expenses, the benefits are still tax free. Only the portion of LTC benefits that exceeds your LTC expenses is taxable.
Myth:
Cash indemnity benefits don’t last as long because the full amount is paid, even if it’s more than expenses.
Reality:
Cash indemnity policies don’t force the policyowner to take the full LTC benefit. The policyowner has the right to take less. When you consider that a reimbursement policy may not cover all expenses the insured incurs, having a cash indemnity policy with some control as to how much is taken in LTC benefits can help prevent out-of-pocket expenses.
Myth:
Cash indemnity policies are more expensive.
Reality:
It all depends on the contract — and with every option, clients should consider value over price. The least expensive policy may not bring the value they want. Other features, such as the elimination period and minimum guaranteed death benefit, will play a role in determining the net cost.
Myth:
Cash indemnity policies turn the policyowner into a bookkeeper.
Reality:
The premise behind this myth is that because reimbursement policies will do direct billing, this results in no monthly bills for the policyowner or family member to pay — while indemnity policies “burden” the family with monthly bookkeeping. But both models merit monthly financial due diligence, including keeping copies of bills and receipts, ensuring accurate billing, and tracking out-of-pocket LTC expenses.
Myth:
Cash indemnity benefits are subject to elder financial abuse, while reimbursement policies are far safer from this risk.
Reality:
All insurance companies are required to watch for elder financial abuse. In addition, reimbursement benefits can be misappropriated by an unscrupulous relative or caregiver who has power of attorney just as easily as any indemnity benefit.
Myth:
Cash indemnity turns the policyowner into an employer when paying caregivers because of the massive amounts of paperwork to do.
Reality:
It is really a matter of whether the caregiver is an employee or if the person being cared for is a client of some form of business entity providing LTC services. With proper planning, the insured can receive (if they choose) quality care from a less expensive, unlicensed caregiver without being an employer.
Finding the right plan for each client
No one benefit model or insurance company offers a policy that fits the needs of every person buying LTC coverage. That’s why it’s so important for financial professionals to understand not only the details of LTC coverage options but also the goals and preferences of their clients.
To learn more, read our white paper (PDF).