While I am on the topic of claims, let’s talk about a little reality here and a statement that I think will get us (as an industry) in trouble.  It’s not something that I have ever made but it is one that I hear all the time in meetings with other carriers.

“As a cash indemnity policy, XYZ gives you the freedom to spend your benefit payments however you want.”

Really?  They can spend the cash that they receive in any way that they want without any tax implications?

Consider the implications, there is a daily per diem limit FOR LTC SUPPORT AND SERVICES in 2026 of $230 per day.  Assuming that the month is 30 days, that translates into $12,900 a month.  That’s a pretty respectable amount and, frankly, more than most policies that are being written.  Remember, that is for qualified LTC!

But, what if the insured decides to use half of the monthly benefits received for non-LTC services?  Say they give their grandchild $5,000 to help then cover rent and a car payment because they lost a job.  Or, they pay the kid next door a few hundred dollars to mow their lawn or paint their house? 

Those are not qualified LTC benefits but the carrier said that “you have the freedom to spend your benefit payments however you want.” And, there is potential for them to become a taxable event.

Speaking of tax-time …

Remember, the filing requirement for cash indemnity LTC benefits is a more involved than that of a reimbursement policy.  So – they better be watching their P’s & Q’s and documenting everything.

While the cash benefits are not taxable when they are equal to or less than the per diem, they may be taxable if they exceed that amount and are not for qualified LTC services.  Our friends offering cash indemnity solutions do mention this in some producer materials while saying nothing about it to the consumer.

Remember the other part of the pitch?  You don’t need to submit your receipts to receive benefits from the insurance company? 

The policyowner and their family had better be holding on to receipts at tax time if there is any discrepancy between what benefits are received and what is expended on those “any way you want” non-qualified LTC support & services that are paid by the cash benefits. 

I’m not bashing cash indemnity benefits – they are useful.  What I am saying is that they should be properly represented to both advisors and consumers … which they are not.

This is one of the things to consider when you talk about indemnity & reimbursement policies. 

In all – you shouldn’t be afraid to ask your carrier questions about how their claims are paid.  How they have been paid.  Who manages their claims processes.  And, their claims paying history.

Afterall, that is what we are all selling – the claim.