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Long-Term Care Insurance

Reimbursement or Indemnification

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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.

The LTC Conversation that has been a Long Time Coming

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Early in my career as an agent, I had an agenda for every client meeting I held. I would cover as many topics as I could and at the very bottom was Long Term Care. By the time we got to discussing LTC, my clients were completely glossed over.

A few years into my career, my grandmother – who was living at home – started getting dizzy and falling often. It got to the point where she needed assistance 24/7. This was the closest I had even been to a Long-Term Care claim and suddenly, LTC Insurance took on a far larger role in my business production.

This is nothing new, we have all heard before that an experience/story helps in the sales process. I was twenty-five years old at the time, so it makes sense that my prior experience was limited.

Fast forward to today, I deal with dozens of advisors every week. Most are within a deviation or two of the mean advisor age of 57, however, few write Long-Term Care Insurance on a consistent basis.

So, the Million Dollar Question: Why is Long-Term Care not a larger part of most advisors practices when they have had much more experience and stories than I have?

Here are some of my observations:

  1. It’s not an easy story to tell
  2. Premiums are not cheap
  3. Premiums are not guaranteed
  4. If you do not use the benefit your beneficiaries get nothing
  5. Clients cannot always afford great coverage

Here are some of the things I have learned:

  1. There are no easy insurance stories. Insurance exists because unexpected life situations are hard. It may sound crazy, but we are far more in touch with our mortality than we are with our fragility.
  2. Premiums are not as expensive as people think. For a healthy 55-year-old woman a Universal Life Insurance policy will cost roughly $11 per thousand. That same woman can get a Long-Term Care Policy for around $6 per thousand. The difference in premium for men is even wider since their life insurance costs are higher and LTC costs are lower.
  3. Premiums are not guaranteed. Neither are Health Insurance premiums, Home Owners, Auto, Business, etc. We get sucked into this trap sometimes where anything that is not designed perfectly, is completely useless. After a brief conversation, if a client is still most concerned about increasing premiums that’s ok, we have other options.
  4. There are many types of insurance that have no value should you not use all or some of the benefit. Again, we suggest discussing the benefit of LTCi further with the client to come up with a solution.
  5. It’s ok if clients can’t afford the highest monthly benefit or the longest benefit period. I can’t afford a Lamborghini, but that did not stop me from purchasing a Subaru. Some coverage will serve your clients far better than no coverage.

One of the most important points I try to make these days is that Traditional Long-Term Care policies are no longer the only arrow in the LTC quiver. We are now steering more advisors and their clients towards Hybrid and Asset Based products. These products have guaranteed premiums, they have cash values, they have death benefits, and they can be combined with other planning.

It is time to stop discussing Long-Term Care like we did a decade ago. We all have our past stories and that goes for clients as well. The biggest difference now is that we have more conclusions to offer for the stories our clients have yet to make.