Excerpt from Scott’s newest book: “The Simple LTC Solution: How to Protect Your Life’s Savings with a Long-Term Care Partnership Program”

Low (or negative) interest rate

Hybrids are often advertised as crediting you with 4% interest (or a similar interest rate). However, after policy fees the actual interest rate is usually negative. When you look at the illustration, go to the page that shows “Guaranteed Values”. Then look on the column that says, “Cash Surrender Value”. The “Cash Surrender Value” is what you’ll receive if you cancel the policy. You’ll see that the “Cash Surrender Value” is usually less than what you’ve put into the policy. With a few policies, the “guaranteed cash surrender value” may grow to be higher than the sum of your premium payments, but even then, the actual growth is usually less than 1%.

Long-term care insurance can pay benefits sooner

In 1996, the federal government created standards by which long-term care insurance policyholders would qualify to receive benefits. Every new policy today, that meets the federal guidelines, has three ways for the policyholder to qualify for benefits. Benefits are payable if the policyholder requires:

1) “hands-on” assistance to perform any two of the six* activities of daily living OR
2) “stand-by” assistance to perform any two of the six* activities of daily living OR
3) supervision to protect the policyholder’s health and safety due to a cognitive impairment

*The six activities of daily living are: bathing, dressing, eating, toileting, getting out of a bed or chair, and maintaining continence.

I have a close relative who is in an assisted-living facility. She has a long-term care insurance policy that meets the federal guidelines. A few times each week she needs “hands-on” assistance to help with bathing. Every morning and every night she needs "stand-by assistance" to change her clothes. She has problems with balance. Dressing and undressing requires a lot of balancing. She needs someone within arm’s reach to make sure she doesn’t fall and injure herself while she’s changing her clothes.

Most hybrid policies use “chronic illness” riders. “Chronic illness” riders do not have to meet the federal guidelines for long-term care insurance. In particular, “chronic illness” riders do not include “stand-by” assistance as a means for the policyholder to qualify for benefits. If my relative had a hybrid policy with a “chronic illness” rider she would not be receiving any benefits from the policy because she needs “stand-by” assistance with one of the activities of daily living. Fortunately, she has a long-term care insurance policy that meets the federal guidelines and the policy is covering the full cost of the assisted-living facility.