What is the difference between reimbursement and indemnity LTC policies?
Key facts
- Reimbursement structure
- Pays against paid receipts up to daily benefit
- Indemnity structure
- Pays full daily benefit in cash, regardless of receipts
- Reimbursement provider rule
- Usually requires licensed agency
- Indemnity provider rule
- Typically pays for any qualifying provider, including private hire
- Where to find it
- Schedule of Benefits page — "reimbursement" vs "indemnity/cash"
Long-term care insurance policies come in two payout structures, and the difference is bigger than most families realize. A reimbursement policy — the more common structure today — pays only against paid, documented receipts from qualifying providers. If the daily benefit is $200 and the family spent $150 on care that day, the policy pays $150. Unspent benefit does not accumulate.
An indemnity (or "cash") policy pays the full daily benefit in cash once the trigger is met, regardless of receipts. If the daily benefit is $200 and the family spent $150 on formal care, the policy still pays $200 — the extra $50 belongs to the family. Indemnity policies also typically pay regardless of provider type, meaning privately hired caregivers and family caregivers may qualify.
The practical consequences: reimbursement policies force families toward licensed agencies (because receipts must be documented) and cap payout at actual spend. Indemnity policies preserve flexibility (family caregiver, private hire, or agency) and let the family capture the daily benefit even on lower-cost weeks. Reimbursement policies are usually cheaper to buy; indemnity policies are usually more expensive but easier to use.
The Schedule of Benefits page names the structure explicitly. Look for the words "reimbursement," "expense-incurred," "indemnity," "cash benefit," or "disability model." If the language is unclear, the carrier will confirm in writing. For families in Southeast Michigan choosing between provider types (agency vs private hire vs family caregiver), this single question determines whether the policy actually pays.
For the full breakdown, see the cornerstone: Long-Term Care Insurance and Home Care guide.
Related questions
- Can a policy be both?
- Some hybrid policies pay a partial cash benefit plus reimbursement. The Schedule of Benefits page lays out the exact split.
- Is one always better than the other?
- Indemnity offers more flexibility and higher effective payout, but costs more to buy. Reimbursement is cheaper but restricts provider choice. Neither is universally better.
- What if my policy is indemnity — can I pay a family member?
- Most indemnity policies allow it. Confirm in writing with the carrier before assuming, and note that the caregiver family member may owe income tax on payments.
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