We spend a good deal of time presenting Long-Term Care solutions to our advisors. Often, we are asked, “Which do you prefer, Reimbursement or Indemnification?”.
The answer is not as simple as one or the other. Here are some points we discuss with advisors to see which structure might be more appropriate for their clients.
First, to clarify the main differences.
Indemnification provides a check every single month for the set amount. This is regardless of whether the actual claim amount for the month is less than, equal, or more than the indemnification amount. Due to this schedule, Indemnification benefits are limited to the HIPAA Per Diem amount which currently sits at $360 per day or $10,800 per month. Indemnification funds can be used for anything and everything if the claim has been certified.
Reimbursement will reimburse a client or pay a service directly for expenses incurred. Each carrier has their own guidelines for what benefits received qualify for reimbursement.
Indemnification can create a headache for family members trying to keep up with invoices and billing.
Reimbursement alleviates some of this when it is set up that the service will invoice the carrier directly.
Reimbursement is most suited for professional/formal caregiving as carriers need to approve all claims.
Indemnification allows informal care to be paid for by the benefit pool.
Indemnification as a rider on a Life Insurance policy will liquidate the Death Benefit in a known period. 1% per month, 2% per month, and 4% per month of the face value are the most common.
Reimbursement as a rider on a Life Insurance policy can take longer to liquidate the Death Benefit as claims may not equal or exceed the monthly benefit each month.
With these in mind, here are some important questions to ask your clients regarding Long-Term Care to see whether Indemnification or Reimbursement would suit them best.
Would you prefer formal (professional home healthcare services, assisted living facilities, nursing homes, etc.) or informal (family, unaccredited healthcare aid, etc) care?
Would you prefer to pay all the bills yourself or delegate the responsibility?
(If it is a Rider on a Life Insurance policy) Are you more concerned with a known monthly benefit or passing as much as the Death Benefit to your beneficiaries as possible?
The next time your client asks you if you prefer Reimbursement or Indemnification, this is some of the information that can help you identify the right type of policy for them.