What is the difference between Indemnity and Reimbursement Long Term Care (LTC) Policies?

Put in the context of retirement income planning, Long Term Care (LTC) insurance is a useful tool with a great deal of flexibility to suit both financial and personal goals.  While certainly not inexpensive in most cases, note that one of the major benefits of LTC insurance is, indeed, savings protection.

In general, there are two types of LTC policies:

  • Indemnity policies pay a selected daily benefit as soon as you qualify under the claim. That amount is paid regardless of the actual cost of care, be it at home or in a long-term care facility. Cash Benefit policies are similar, with a particular benefit paid per day, and they offer a bit more flexibility regarding the use of given their "for anything or anyone" cash disbursement. 
  •  Reimbursement policies will pay up to a daily benefit limit or amount depending on the cost of care.  Any amount over the daily or monthly limit would be the responsibility of the insured. The advantage here is the potential to extend the policy life prior to reaching the payout  maximum if cost happens to be lower on the front end.  

In either case, benefits will be paid when the insured is unable to perform two out of six "activities of daily living" (ADLs). These include bathing, caring for incontinence, dressing, eating, toileting or transferring (mobility in or out of a bed or chair, for example).  When these become an issue, a medical review and an approved "plan of care" will begin the claim process. Once approved, the insured will likely have to pay out of pocket for long-term care services during the elimination period.