LINKING HOUSING WEALTH TO LONG TERM CARE
After retiring and relocating to Hoosierland three years ago to be nearer the grandchildren, you’re looking forward to (hopefully) decades of “aging in place” in your much smaller and now beautifully refurbished and fully paid for Indiana suburban home. While in the course of relocating you had updated your estate planning documents in accordance with Indiana laws, you now have the time to pay more attention to details and together have begun to attend various in-person and online seminars on investments and estate planning. Both in your late sixties and in good health, and with both children doing well in their own right, you are determined to remain in control of your own “destiny”.
At these lectures and webinars, one topic that immediately caught your attention was long term care, because your policies have now three times been taken over by new insurance companies, and the premiums have now twice been significantly increased. At a recent session, you heard for the first time about the option to buy a combo life/long term care policy called linked benefit. You find the concept of making one (albeit very large) payment and never worrying about future increases very appealing in and of itself, but what you find really important is that, in the event you don’t need to use any or all of the benefits in the form of actual long term care costs, your children would “get the money back” in the form of a death benefit.
The problem, needless to say, is one of funding such a large single-sum (true, the option exists to spread the linked benefit insurance over a few years). Both your retirement plan accounts and your joint investment accounts have done well this past year, but there is no way they could support withdrawals of that magnitude. Reluctant as you are to incur debt, the concept of locked-in Long term Care coverage is so appealing, and with stellar credit records, you’re considering applying for a home equity loan.
You’re to be complimented on remaining highly active in “remaining in control of your own destiny,” continuing to educated yourselves on planning options. Should you decide to move forward with the purchase of linked-benefit insurance coverage, consider accessing your housing wealth in the form of a reverse mortgage rather than a “forward” home equity loan.
With a reverse mortgage, so long as you continue to occupy the home, there will be no need to make monthly mortgage payments.* The money you withdraw to make the insurance payment will be non-taxable, and the unused portion of your equity will grow at the same rate of interest as that being charged on the borrowed portion.
When, at a future time, neither of you is able to occupy the home, your heirs will have the option to keep the home, possibly using the policy’s death benefit to pay off the loan, or surrender the home to the lender. (Since a reverse mortgage is by definition a non-recourse loan, heirs will never be left owing any money to the lender.)
Linked benefit insurance is a way to create a death benefit for your beneficiaries and a pool of money to pay for covered long term care needs. By “linking” long-term care with your housing wealth, you have the opportunity to avoid all three negatives you mentioned: (1) dealing with ever-increasing long term care premium notices. (2) tapping into your joint investment and your retirement accounts, and (3) new monthly mortgage payments.*
You’re to be congratulated for exploring options and “paying attention” to important retirement planning details, remaining “in control of your own destiny.”
*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org
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