Advisors often make the misconception that Long Term Care (LTC) riders and Chronic Illness (CI) riders are the same. While the reality is there are distinct differences in the how the benefits are received.
To receive true LTC benefits the timetable for recovery can be immediate or indefinite. For example, if the client breaks their hip at the age of 70 and cannot perform two of the six activities of daily living (ADLs), the client can use their LTC benefits to pay for their care, even if they’re expected to make a full recovery in a couple of months.
To receive Chronic Illness benefits, not only does the client have to be unable to perform 2 of the 6 ADLs or suffer from a severe cognitive impairment, they also need to have a physician certify that the condition will not improve. In the same example as LTC, the client would not be entitled to their living benefit with a Chronic Illness rider, because there is a timetable for recovery.
REIMBURSEMENT VS. INDEMNITY
Indemnity policies provide more flexibility in how clients use the money received as a result to an LTC claim. Once the client qualifies to go on a claim based on an inability to perform two of the six ADLs or due to a severe cognitive impairment, the carrier will issue the benefits no questions asked. The client can use the money as they see fit. For instance, if the client has a maximum benefit of $10,000/month, even if their care only costs $2,000, they can collect the entire $10,000 benefit from the carrier.
With a reimbursement policy, the client must submit receipts for having received qualified care for the carrier to pay the benefit. If a client is receiving $2,000 worth of care per month, it could take them 5 times longer to get access to their entire benefit pool, while the indemnity client received more up front, even if most of the benefit was not used for their care.
Taking an In-Depth Look- Long Term Care Benefits vs. Chronic Illness Benefits Did you know that an average couple that retires at age 65 today should expect to spend, on average, $220,000 for out-of-pocket medical expenses during their retirement years? AIG shows you how retirees can protect themselves against the risk of not having enough money to pay for long-term care services at some point in their lives.