Long term care and reverse mortgages: what you need to know

By Frank N. Darras


Every day, baby boomers are turning 60. More than 75 million Americans who are older than 50 are targeted as potential customers, and every year, this number increases by 4 million.

These numbers have inspired the insurance industry to offer a variety of feature-rich long term care insurance policies and attractive solutions so policyholders can make the high premium payments.

Reverse mortgages are now offered as a solution to help homeowners make those big payouts and prepare for long term care.

Not so fast. There are a variety of ways to get reverse mortgage payments, and there are limits. If a homeowner has equity in a home, they can convert a portion of that equity into cash. The equity built up over years of home mortgage payments can be paid to them. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. This is a risky and dangerous bet.

Betting a house on an insurance policy can backfire and leave the homeowner with nothing. If they get a HUD, U.S. reverse mortgage provides these benefits, and it is federally insured, as well. To obtain a HUD-insured reverse mortgage, they must be 62 years of age or older; own the home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home.

Choosing a long term care insurance policy is a decision that will impact the quality and type of medical care clients receive as they age. Help them become a smart insurance shopper, teaching them about what they're buying and how to use what they paid so dearly for when claim time rolls around.

Here is a list of suggestions to offer your clients:
  • If you have enough liquid assets to cover rising medical costs directly, you may not want to spend money on long term care premiums.

  • If you want to invest in long term care, choose the right type of policy to buy: a stand-alone comprehensive policy; a rider to your life insurance policy; a conversion option to your disability policy when you retire; or a single premium annuity that funds the long term care policy.

  • How long has the company been selling long term care insurance? Do they sell in all 50 states? How many policies do they have in force? Does the agent or broker own the long term care policy he or she is trying to sell you? If not, why not?

  • Research the long term care insurance carrier and choose the one with the finest claim paying history and the fewest premium rate increase requests

  • Remember these policies have been over-sold, under-priced and may be actuarially unsound, so be smart and don't buy a ticking time bomb that blows up before you can use it.

  • Cheaper premiums from a company you don't recognize will do you no good at claim time if the company has gone out of business.

  • If you are wrongfully denied your insurance benefits, know your consumer rights and remedies and find competent legal counsel that specializes in long term care litigation. Will the lawyer offer free consultation? Free advice? Free policy analysis? Free claim evaluation?
Encourage them to examine the different benefit categories: nursing home, in-home care and assisted living/adult day care. Also, make sure they are familiar with the policy's definition of the activities of daily living (ADLs).

Look for policies that pay for all three categories, including care by non-professionals, such as family members or friends. These are the policies that get the most use.

Finally, have them read through their policy when they get it to ensure they understand how it works. Translate any legalese into plain English. Make sure they know how to make the claim stick with free legal advice and explain where to get "real help" if their carrier wrongfully denies.

Every year, Generation X, baby boomers and senior boomers pay billions of dollars in insurance premiums; the Insurance industry should honor what they sold us and pay what they promised.

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