Friday, February 20, 2009

Reimbursement VS Indemnity in Long term care policies

Long-term care policies come in two basic models: reimbursement and indemnity. Choosing between these two types of policies is not nearly so simple.

Consider these questions:

1. How are your benefits paid?

Assume you have a $200 daily benefit. Reimbursement pays for only the covered service. If you spend $70 on a provider, you get $70 in reimbursement. The other $130 remains in your pool of benefits. As long as you have a documented service, indemnity will pay you the full $200 even if you spend only $70.

If you take the indemnity plan’s full $200 every day, you may run out of your money while you still need it. Your pool will run dry. A reimbursement plan keeps the money that you don’t spend in your pool of money, thus effectively stretching out the time limits on your benefits until you spend whatever is left.

The indemnity seller asks the customer, “Why should the insurance company tell you how to spend your money?” The reimbursement seller asks the customer, “Did you actually buy long-term care insurance to pay for airline tickets?” Reimbursement sellers argue that the insurance money was never intended to pay for services that any caring family member or friend would do for love and for free.

2. Who provides the service?

Reimbursement policies insist that you use licensed caregivers, although you may be able to purchase a rider to allow you to pay family members. An indemnity plan may let you pay family members or informal caregivers who cost less than licensed providers. Why buy a reimbursement policy, especially if you think you’ll have trouble finding a licensed caregiver? Because the policy usually allows for these conditions, and besides, the companies have developed networks of providers for practically every area of the country.

3. Which model costs less?

Indemnity sellers say that their claims don’t cost much to process, there is less overhead, and the premiums should be less. Sellers of reimbursement policies make the opposite case, arguing that premiums for reimbursement are lower because the claims costs tend to be lower; indemnity policies may cost more because claims costs are higher for indemnity insurers. In fact, as of this writing, the premium costs are almost the same. But a Life Plans consultant anticipates that this will shift as the indemnity insurers begin to play catch-up as their claims start to come due in 10 years.


  1. I recently came across your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


  2. what the plus and minus of this program?

  3. Its very good blog, i think it can help nj understand such a problem.

  4. Well I think reimbursement can be of many types like day care, mobile expense, transport, medical expense, study expenditure.

  5. A useful post, which has encouraged me to find out more about reimbursement and PI insurance. Thanks for sharing this!


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