The practical difference between a fixed-benefit policy and an indemnity policy in long-term care insurance: what is paid under each, which supporting documents are required, what happens where there are several covers, and how to tell which type your policy is.
Two different worlds behind the same product
When people talk about long-term care insurance it sounds like a single product. In practice there are two entirely different payment mechanisms, and the difference between them affects almost every aspect of a claim.
In a fixed-benefit policy the sum is set in advance. If the claim is approved it is paid, regardless of the actual expenditure. In an indemnity policy the payment is tied to expenditure that has been proved, and is sometimes capped.
Many families do not know which type their policy is, and find out only when they are asked for supporting documents they did not keep. That is a mistake a single phone call can prevent.
A fixed-benefit policy: what is promised is paid
This is the simpler mechanism from the customer's point of view. The policy sets a monthly sum, and subject to meeting the definition and the waiting period it is paid.
The advantage is obvious: there is no need to prove expenditure, and there is no connection between what you actually spend and what you receive. A family caring for the person themselves, without a paid carer, receives the same sum as a family employing a live-in carer.
The possible disadvantage: if the actual expenditure is higher than the sum that was set, the gap stays with the family. And where an older policy carries a sum that is not index-linked, that gap may be large.
An indemnity policy: reimbursement against proof
Here payment is conditional on proved expenditure. The policy may set a cap, but what is actually paid depends on what you spent and on the supporting documents you produce.
The practical meaning is that financial documentation becomes an inseparable part of the claim. A carer's employment contract, payslips, invoices from a care institution, receipts from a care agency — all of these are required.
This is where the most expensive mistake in the field lies: families who pay in cash, without a contract and without payslips, for years. When the time comes to claim there is nothing to produce. Reconstructing it retrospectively is usually impossible.
- A signed employment contract for the carer, setting out duties and hours
- Payslips and monthly payment confirmations
- Invoices and confirmations from a care institution or sheltered housing
- Receipts from a care agency or a placement company
- Confirmations of equipment or services purchased, where these are covered
- Documentation organised by month, not a pile of papers
How to tell which type your policy is
The reliable way is to read the benefits chapter of the policy. If it contains wording such as "against production of receipts", "subject to proof of actual expenditure" or "up to the amount of the expenditure", it is an indemnity policy.
If it sets a fixed monthly sum with no condition relating to expenditure, it is a fixed-benefit policy.
If you are not sure, you can put a direct question to the insuring body: "Is the long-term care cover of the fixed-benefit type or the indemnity type?" That is a simple question they ought to answer, and it is worth asking for the answer in writing.
Mixed arrangements and what happens where there are several covers
Some policies change mechanism according to where the insured person is living — a fixed benefit at home and indemnity in an institution, or the reverse. It is important to check this explicitly.
Where several covers exist the distinction becomes more complex. Two fixed-benefit policies may pay in parallel, whereas indemnity covers may be subject to different rules in respect of the same expenditure.
So when several covers come to light it is worth mapping each of them: what type of benefit it provides, what the cap is, and what has to be proved. Only on the basis of that map can you decide how to file.
Frequently asked questions
What is the difference between a fixed-benefit policy and an indemnity policy?
Under a fixed benefit a set sum stated in the policy is paid, regardless of the actual expenditure. Under indemnity the payment is tied to expenditure that has been proved and is sometimes capped, which is why supporting documents are required.
How do we tell which type our policy is?
Read the benefits chapter. Wording such as 'against production of receipts' or 'subject to proof of expenditure' indicates indemnity. You can also put a direct question to the insuring body and ask for the answer in writing.
What happens if we paid in cash without receipts?
Under an indemnity policy this is a significant problem, because payment is conditional on proof of expenditure. It is worth checking what records do exist — bank transfers, messages or a contract — and starting to document immediately.
Can payment be received from two policies at the same time?
The mere existence of two policies does not guarantee two payments. Two fixed-benefit policies may pay in parallel, whereas indemnity covers may be subject to different rules in respect of the same expenditure.
Can the mechanism change between home and an institution?
Yes. In some policies the benefit at home is a fixed sum and in an institution it is indemnity, or the reverse. This is a point worth checking explicitly before moving between the two situations.
Official sources for further checking
This is general information and does not replace personal medical, legal or insurance advice. Eligibility is determined by the documents and rules that apply to each case.
