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.