The first type is the reimbursement payment contract. The insured is reimbursed only for the actual daily expenses. The second type is an indemnification contract. The insured is compensated for the actual daily benefit disregarding the every day actual documented expenses. As of right now there is no promise that the money when received will be tax-exempt.
Some companies still sell non-qualified contracts.
The purpose in doing so is because a non-qualified contract may be easier to receive a benefit from. This differs from qualified contracts, which contain language that place, a restriction on your right to be compensated. The payment is not unconditional since your physician must certify that you are chronically ill as defined by the contract. In addition your disability is expected to last at least 90 days. It is an unequal legal document because only the policy-owner can change the contractual stipulations.