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What is the difference between an “indemnity” and “expense incurred” long term care insurance policy?

Daniel Walker
Licensed Insurance Agent for 15 Years

UPDATED: Mar 19, 2020

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Indemnity and expense reimbursed long term health insuranceThe terms “indemnity” and “expense incurred,” as far as health insurance goes, refer to the way a policy addresses the total amount of long term health insurance benefits.

Indemnity insurance policies pay a fixed daily amount for long term care, while an expense incurred policy will reimburse you up to a certain amount that you decide upon when purchase the policy.

To get insurance quotes on both type of long term care policies simply enter your zip code into the free rate getter now!

Definitions of long term care, and the benefits of both indemnity and expense incurred plans, follow.

What exactly is long term care health insurance?

Long term care insurance can be an important part of someone’s health care program. It is helpful because it can help take care of the charges incurred for care that must extend beyond a predetermined period (like a typical hospital stay, for example).

Someone who needs long term care is not necessarily someone who is sick in the sense that he or she needs to be in the hospital for a week or so, getting fluids or medicines for an illness that will soon get better. Long term care does not even necessarily apply to someone who has a long term disease.

Long term care or LTC is more for people who need assistance with daily activities like eating, dressing, bathing, walking, and getting in or out of bed. These insurance policies cover expenses incurred in nursing homes, assisted living homes, or adult daycare. They also usually cover hospice care, home care, and respite care. It can help provide a loved one with live-in or visiting caregivers, housekeepers, therapists, or private nurses.

Without LTC, a person will be forced to pay for these things out of pocket, quickly depleting any savings he or she, or the family, may have. These policies usually have affordable premiums, though they may be more expensive the longer a person waits.

What’s so great about indemnity long term care insurance?

This policy is usually more expensive than the reimbursement policy, but this is because your insurance company will likely pay you more money with this insurance. Your policy includes a fixed daily (or weekly, monthly, etc) amount that you will always receive, regardless of how big or small the bill is. For example, if your policy covers $300 a day, but your in-home nurse only costs $200, you will get the $300 a day anyway. You pay for the policy, you get the total benefit.

So, this kind of policy is great because it gives you room to spend the money how you see fit. The downsides, of course, are that this policy will cost more at offset, and that you are responsible for any additional costs that are over the daily amount. It does not matter if it is $1 or $1,000 over that amount; whatever it is, you are responsible for it.

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Why would I pick an expense occurred policy?

Most simply, you would pick the expense occurred (reimbursement) policy primarily because it is a lot cheaper. This is because the insurance company is not just putting money into your pocket for you to use as you see fit; rather, the company is only paying a strict and certain amount.

This type of long term care plan will also have a daily limit, but it will only reimburse what you spent. If you have a $300 daily limit, and your nurse is $200, you will get the $200, and that’s that. Many plans, though, will let the remaining $100 be placed in the pool that includes all your benefits. It is like a cell phone company providing roll over minutes. It is not always included, but it is a benefit you should ask about.

None of these plans will provide unlimited coverage; all will include some final benefit total of some kind, telling you that you can have X amount of days with an X daily allowance. If that pool runs dry, you are back to your own pockets.

It may be worth it for you to purchase long term care sooner rather than later. The longer people wait to purchase this kind of insurance (close to retirement or just after retirement, in particularly) the more it will cost. For more information refer to the article on how the best age for buying long term care insurance. Buying now will not only mean that the premiums will be cheaper, but they could be tax deductible, and benefits from long term care are not included in your income. If you are a business owner, you can also deduct the premiums you have paid for your employees’ policies.

Use the free online quote tool on this page to find out the best rates you are eligible for. Within minutes, you will have tons of options to pick and choose from.

Type your zip code into the free long term care insurance quotes tool today!

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