Indemnity VS Reimbursement

[Crazy Rick]

Hey guys,

Look, my understanding is this: Reimbursement: The Long Term Care recipient pays the care giver or care giving company, submits the receipt to the IC and they send the recipient the money. Indemnity: Recipient receives a check from IC daily, monthly, whatever, for the same amount in the policy regardless of services rendered.

Well, who wants a reimbursement contract? That's just more paperwork and it's not available in some MetLife policies. Who, if they're receiving care wants to get out their checkbook, make out the check to whomever, send more paperwork to the IC via snail mail I'm sure and then wait weeks for reimbursement? This is not a product people want. Am I wrong? How would you sell this contract knowing what I just said will have occur, each time services are rendered? What if the recipient can't speak?

CR

 

[Mr_Ed]

Crazy Rick,

Actually, there are 3 different types of claiims payment "models": reimbursement, indemnity, and cash indemnity.

What you've described is "cash indemnity", not indemnity. Cash Indemnity policies are offered by about 6 or 7 different companies, usually as a rider to their "reimbursement" policy.

With an "indemnity" policy, the claimant still must submit proof that the he/she received care that qualified under the policy. The only difference between an "indemnity" policy and a "reimbursement" policy is that an "indemnity" policy will pay the full daily benefit for each day of qualified care, regardless of the actual cost of care.

The advantage to a "cash indemnity" policy is NOT that the claimant won't have to submit paperwork or get out his or her checkbook each month. The claimant isn't doing that stuff anyway--his or her family member/legal representative is doing that.

The primary advantage to "cash indemnity" policy is that they can allow family members to be paid to provide the care (or anyone for that matter.)

The only disadvantage to a "cash indemnity" policy is that in most cases, not all, but most, it is priced about 60% to 100% more than a reimbursement policy.

 

[Franz Kafka]

Crazy Rick,

Actually, there are 3 different types of claiims payment "models": reimbursement, indemnity, and cash indemnity.

What you've described is "cash indemnity", not indemnity. Cash Indemnity policies are offered by about 6 or 7 different companies, usually as a rider to their "reimbursement" policy.

With an "indemnity" policy, the claimant still must submit proof that the he/she received care that qualified under the policy. The only difference between an "indemnity" policy and a "reimbursement" policy is that an "indemnity" policy will pay the full daily benefit for each day of qualified care, regardless of the actual cost of care.

The advantage to a "cash indemnity" policy is NOT that the claimant won't have to submit paperwork or get out his or her checkbook each month. The claimant isn't doing that stuff anyway--his or her family member/legal representative is doing that.

The primary advantage to "cash indemnity" policy is that they can allow family members to be paid to provide the care (or anyone for that matter.)

The only disadvantage to a "cash indemnity" policy is that in most cases, not all, but most, it is priced about 60% to 100% more than a reimbursement policy.

I just started selling LTC this year (09). 2 veterans I consulted with both commented that they preferred reimbursement over indemnity for following reasons.
- They still have to submit proof for indemnity
- A lot of times "left over" $ gets spent for reasons other than LTC
- For limited budget (most people) it would be better to increase benefit amount or period for the same premium.
What do you think?

 

[Mr_Ed]

Frank,

"Proof of Loss" (receipts) do need to be submitted to the insurer for both reimbursement policies and indemnity policies.

However, receipts do not need to be submitted for "cash indemnity" policies.

In most cases, I've found the "cash indemnity" policies to be significantly higher premium than the "reimbursement". (ofcourse, it varies according to age, health history, and choice of benefits.)

You bring up a very valid point about "buying more benefit" for the same premium.

If I had a choice between a reimbursement policy with $200 of daily benefit, a 5% compound AIB with no cap, and a 5 year benefit period, for the same price as a "cash indemnity" policy with $150 of daily benefit, 5C, and a 5 year BP, I'd go with the reimbursement.

But, we need to find out what our clients want. There are some cases where they want a policy with the flexibility of a "cash indemnity".

 

[DHK]

I just started selling LTC this year (09). 2 veterans I consulted with both commented that they preferred reimbursement over indemnity for following reasons.
- They still have to submit proof for indemnity
- A lot of times "left over" $ gets spent for reasons other than LTC
- For limited budget (most people) it would be better to increase benefit amount or period for the same premium.
What do you think?

That's only a problem for people who have LIMITED benefit periods - like 5 years, etc.

Think about the advantages of a LIFETIME benefit with Cash Indemnity?

Think about if you had 1st day coverage?

Think about if you had a $6,000 monthly cash benefit and a $2,000 monthly care expense? That the $6,000 increases every year by 5% as well as your monthly care expenses?

Have you ever been on a cruise? How many people in wheelchairs on the cruise?

Couldn't this be a creative "alternative pension" option for people?

What could the "return" be on that "alternative pension" plan for the amount of premiums paid into the plan to get that income stream out of it?

Just something to think about.

 

[Mr_Ed]

To suggest that "cash indemnity" long term care insurance be sold as an "alternative pension" is, at a minimum, a violation of every LTC insurers' compliance and marketing agreements, and could result in termination of contract and appointment. It is also unethical and very possibly illegal. It is certainly a lawsuit waiting to happen.

 

[Franz Kafka]

That's only a problem for people who have LIMITED benefit periods - like 5 years, etc.

Think about the advantages of a LIFETIME benefit with Cash Indemnity?

Think about if you had 1st day coverage?

Think about if you had a $6,000 monthly cash benefit and a $2,000 monthly care expense? That the $6,000 increases every year by 5% as well as your monthly care expenses?

Have you ever been on a cruise? How many people in wheelchairs on the cruise?

Couldn't this be a creative "alternative pension" option for people?

What could the "return" be on that "alternative pension" plan for the amount of premiums paid into the plan to get that income stream out of it?

Just something to think about.

I did mention "limited budget". So far I don't know of anyone who can afford Lifetime Benefit let alone Cash Indemnity with 1st day coverage. Heck if they have the $ (I mean $$$$$) I would throw in 10 pay also. You do know what the premium will be like on your policy, don't you?

 

[bluemarlin08]

90% of all my clients own lifetime benefits, never see indemnity plans too expensive. BTW, first day coverage for HC IS available.

 

[DHK]

To suggest that "cash indemnity" long term care insurance be sold as an "alternative pension" is, at a minimum, a violation of every LTC insurers' compliance and marketing agreements, and could result in termination of contract and appointment. It is also unethical and very possibly illegal. It is certainly a lawsuit waiting to happen.

Let's be practical about this for a moment.

This is the EXACT wording in the contract:

"INDEMNITY BENEFIT RIDER​

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With this option, we'll simply reimburse you your Daily Benefit​

Amount, regardless of the actual expenses incurred."

So, what would YOU do with the difference that would come in every MONTH?

If your daily benefit was $200 / day and your expenses were initially $25/day... what would you do with the extra $175 per day?

Wouldn't you choose to LIVE off of it?

Oh yeah, and it's tax free to them too.

Yes, the client needs to be able to PAY for it. But if they can "see" it as a source of additional income in the future, it's psychologically easier to come up with the premium. (Premiums are typically between $6k-$10k per year with lifetime pay and JOINT policies.)

 

[Mr_Ed]

DHK,

I understand that "indemnity" and "cash indemnity" policies pay the full Daily/Monthly Benefit regardless of the actual expenses incurred. I understand that it can be advantageous to the policyholder to own a "cash indemnity" policy rather than a reimbursement policy. All things being equal, a "cash indemnity" policy is superior to a "reimbursement" policy.

My concern is your use of the term "alternative pension". In my opinion, using language like that to describe a LTCi policy is deceptive.

I suggest that you call the insurer(s) for whom you are appointed that offer "cash indemnity" policies and ask them if they approve of your use of the phrase "alternative pension" when marketing their "cash indemnity" policies.

Let us know what they say.