When a long-term care policy pays, it pays in one of two ways. The difference matters more than most people realize, especially if family will provide some of your care.
Reimbursement
You or your provider submit receipts for qualified care, and the policy reimburses actual costs up to your monthly limit. If care costs $5,000 one month and your limit is $6,000, you receive $5,000.
Indemnity (cash)
Once you qualify, the policy pays your full monthly benefit regardless of what you actually spend, within IRS per-diem limits for tax-free treatment. You can use it however you need, including paying a family member.
- Reimbursement: usually lower premium, receipts required
- Indemnity: more flexibility, simpler claims, often costs more
- Some hybrids blend the two
Which is better?
If you want family to provide care or want the simplest claims process, indemnity is often worth the extra cost. If you mainly want facility or agency care covered at the lowest price, reimbursement can be the better value.
Questions
Can long-term care benefits pay a family caregiver?
Indemnity policies pay you cash you can use for a family caregiver. Some reimbursement policies also allow informal or family care, often with limits. Check the specific policy.
Are indemnity benefits taxable?
Indemnity benefits from a tax-qualified policy are generally tax-free up to the IRS per-diem limit, or above it to the extent of actual qualified expenses. Consult your tax professional.