What is a “Recovery Policy”?
Finding out what a recovery policy is requires some background information. In most states, these policies are called “Limited Benefit Convalescent Care.” That’s not an appealing name for an insurance policy.
Sometimes, these policies are mislabeled as “short-term care” policies. That can be misleading because some of these policies with inflation protection can pay over $500,000 of benefits for each period of care. That doesn’t sound like “short-term” to me. Some states even approve and regulate these policies just like traditional long-term care insurance.
I like to refer to these policies as “Recovery policies”.
First off, there are A LOT of these policies out there. And some of them are very good. Some of them are “not-so-good” when compared to others. When comparing these policies, be sure to ask these questions:
Does the policy use “benefit triggers” similar to long-term care insurance?
In other words, do policyholders qualify for benefits if they need assistance with any 2 of the 6 activities of daily living OR have a cognitive impairment and need supervision to stay safe?
Does the policy pay benefits for care received in the most common care settings?
Yes. Home care, assisted-living facilities, nursing homes, etc.
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How much does the policy pay for care at home?
This is VITAL. Some “Recovery policies” pay much lower amounts for care received at home compared to what the policy can pay for care in a facility.
Does the policy have some inflation protection?
It’s a good idea to have inflation protection.
Lastly, can the policy be used more than once?
Some of these policies have a “restoration of benefits” feature that allows the benefits to be restored if you recover.
“Restoration of Benefits” Example
A client of mine was putting her holiday decorations away in her attic. She stepped backward, missed the ladder, and fell to the floor below. She fractured her pelvis and was rushed to the hospital to have surgery. After a few days in the hospital, she was transferred to a skilled nursing facility to begin physical therapy and the long rehabilitation process. After twenty days in the skilled nursing facility, she was able to go home to continue her rehabilitation. For the next nine months, she had intensive physical therapy at home. At first, she needed a live-in home health aide. As she improved, she cut back on the hours the home health aide was with her. After nine months, she fully recovered and no longer needed assistance.
A “recovery policy” with no elimination period and a $300 daily benefit would have paid $81,000 in benefits during her nine months of recovery. After 180 days without needing care, the policy benefits would be fully restored. In other words, the $81,000 of benefits would be returned to the policy so that the next time she needed care the full policy benefits would be available to her.
Recovery Policy Benefits
In some ways, Recovery policies are better than traditional long-term care insurance:
1) They usually don’t have any elimination periods.
That means that benefits are payable from the first day you qualify for benefits.
2) Most Recovery policies pay the daily benefit regardless of the actual cost of care.
For example, if the Recovery policy pays $300 per day and your care costs $180 per day, you can use the extra $120 in any way you want.
3) Most pay benefits “in cash,” so there is more flexibility in choosing care providers.
4) These policies can pay benefits for care that may only last a few weeks or a couple of months.
Most traditional long-term care insurance policies will only pay benefits if your care is expected to last 90 days or longer.
5) Lastly, these policies have noninvasive, “simplified underwriting”.
In most cases, we can get a Recovery policy approved in 5 business days or less.
