In your early eighties, you feel blessed, having never needed to collect benefits from the long-term care policies on which you’ve been paying annual premiums for the past thirty years. (Concerned by yet another impending escalation in the cost of the inflation rider, three years ago you accepted an option extended to you by the insurer to “freeze” the coverage at its then level, but knew the importance of continuing the coverage.)
Now, with their own two children through with college and self-supporting, your fifty-five year old son and his wife are in the process of purchasing their own long-term care coverage and have been asking for your advice. Since a major goal for them is to have their home fully paid for and in top-notch condition prior to retiring (in ten to twelve years), they are not anxious to spend any more than needed on the insurance coverage. They have been considering an option suggested to them of buying a higher amount of coverage to begin with and forgoing an inflation rider. The two of you, on the other hand, have watched other seniors and their families struggle with the inexorably rising costs of facility and home care, and you want your son and daughter-in-law to be as prepared as possible for their future.
As you obviously realized when purchasing your own policies decades ago, and as Julia Kagan points out in Investopedia, “LTC insurance is typically purchased years before benefits are drawn upon, but the future costs of medical care twenty or thirty years from today may greatly exceed the policy benefit.”
One possible approach would be to have your son and daughter-in-law not only forego the inflation rider on their policies, but also agree to longer “elimination periods” (meaning benefits might begin months following a claim rather than immediately), in order to render the premium costs more affordable.
Once they reach retirement age, having achieved the goal of having the mortgage paid and the home in good repair, that housing asset can serve as a backup plan should the need for long-term care arise. With a reverse mortgage set up as a line of credit, medical care needs that might exceed the long-term care policy coverage can be taken care of without affecting their retirement or personal investment accounts. They will be under no obligation to make monthly mortgage payments,* and the unused portion of their home equity will be credited with growth at the same rate as the interest being charged on any borrowed funds.
It makes sense for your son and daughter-in-law to set basic long-term care protection in place now (at their current ages and health status), avoiding costly policy features and riders, focusing on paying down their remaining debt before retiring. Later, their housing wealth will be accessible to help cover future long-term care needs.
With a HECM (Home Equity Line of Credit) reverse mortgage set up as a line of credit, you will have no obligation to make monthly mortgage payments,* and will be able to “draw” on that line of credit as needed to cover expenses.
https://mutualreverse.com/david-garrison
*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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