Reimbursement Model
Simply put, Reimbursement Model policies repay the insured for qualifying long-term care expenses that he or she incurred, subject to the amount of coverage purchased.
Reimbursement Example 1
Sandy purchases a Reimbursement Long-Term Care Insurance Policy with coverage of $150 per day. Sandy later needs Home Health Care services and the cost is $80 per day. Sandy's Reimbursement insurance coverage would reimburse her for her expenses and as a result she would receive $80 per day of qualifying services. The remaining $70 ($150 per day in coverage minus $80 paid in benefits = $70) remains with the insurance company and is available for Sandy's use down the road.
Reimbursement Example 2
Charles purchases a Reimbursement Long-Term Care Insurance Policy with coverage of $150 per day. Charles later needs Home Health Care services and the cost is $200 per day. Charles' Reimbursement insurance coverage would reimburse him for his expenses up to the amount of coverage purchased, and as a result he would receive $150 per day of qualifying services. Charles would be personally financially responsible for the remaining $50 ($200 per day in expenses minus $150 received in benefits = $50).
Tax Treatment of Benefits Received
For policies that pay benefits under the Reimbursement Model, the benefits received are considered to be a reimbursement for expenses incurred for medical services. This is true regardless of whether the Tax-Qualified Long-Term Care Insurance policy reimburses pays benefits on a daily, weekly, monthly or other periodic basis (IRC Sec. 7702B(a)). As a result, benefits under a Reimbursement Model are generally not considered income.
*The case study results are for illustrative purposes only and should not be deemed a representation of past or future results. This example does not represent any specific product, nor does it reflect sales charges or other expenses that may be required.
We do not provide tax or legal advice. Any decisions whether to implement these ideas should be made by the client in consultation with professional financial, tax, and legal counsel.