Traditional Long Term Care Insurance
Traditional long term care insurance policies work similarly to many other insurance products, in that you pay a regular premium for your coverage. There are three different varieties of traditional long term care insurance that vary based on their payout methods: reimbursement, indemnity, and cash.
A Reimbursement Benefit Policy reimburses you for your approved expenses up to your daily coverage limit. The unused benefits remain in the pool of money for future use. For example, if you buy a policy with a $200 Daily Benefit and a 5-year Benefit Period, you will have a Benefit Pool of $200 per day x 365 days per year x 5 years = $365,000. The Benefit Period is just used to calculate the Benefit Pool – it doesn't necessarily mean that you only receive coverage for that time period. For example, if you entered a long term care facility that cost $200 per day, your insurance would cover your expenses there for 5 years. If your facility charged $100 day, your insurance would cover your expenses for 10 years. If your facility charges $250 per day, the policy would pay for $200 per day for 6 years, and you would pay the additional $50 per day out-of-pocket. While Reimbursement Benefit Policies usually cost less than other types of policies, there are usually more restrictions on who can be reimbursed for providing care.
The second type of traditional long term care insurance is called an Indemnity Benefit Policy. This policy differs from the Reimbursement Benefit Policy in that the insured is automatically paid the maximum daily benefit everyday on which a claim is submitted. The full benefit is paid regardless of the cost of that day’s care. For example, if the cost of the care for that day totaled $50, and your daily benefit is $200, you get a $200 check for that day. The difference is yours to spend as you see fit. The flexibility to spend the difference however you choose is usually enticing, but you must remember that it will be difficult to find another flexible investment vehicle that would provide and protect that money for long term care.
The third type of traditional long term care insurance is a Cash Benefit Policy. This type of policy is similar to an Indemnity Benefit policy in that you automatically receive your maximum daily benefit when the benefit has been triggered. While Indemnity Benefit Policies only pay for the days you receive care, Cash Benefit Policies start sending a monthly check when the benefit is triggered. The policy pays out the maximum daily benefit for every day in the month, regardless of the number of days you receive care. For example, if your policy had a Daily Benefit of $200, and you required adult day care three days per week, even if the day care only cost $75 per day, you would still receive a monthly check for $200 x 30 days/month = $6,000.
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