LTC Alternative --- GUL + Reverse Mortgage

[J2727]

No, I don't see the direction you're talking about.

Even if someone has substantial assets, they should still utilize some leverage to cover potential LTC costs.

-So sell them LTC insurance

Self-insuring is foolish, even with substantial assets. They wouldn't self-insure their home, cars, etc.

-So sell them LTC insurance

Beyond LTC insurance, there must be alternatives for people won't get LTC insurance for whatever reason.

-Not everyone will qualify for LTC insurance, not everyone can afford LTC insurance, AND not everyone will want LTC insurance. It's a reality of life.

Every strategy I listed outside of LTC insurance still utilizes some leverage. The client would be better off using any of those strategies as opposed to not having any LTC plan at all.

- The client would be better off buying LTC insurance

What don't you understand about alternatives to cover LTC costs outside of LTC insurance?

Yes, LTC insurance is best, but if the person doesn't want to do it, use another strategy.

You can't force someone to buy LTC insurance, no matter how well you explain it to them.

It doesn't matter if the client will be better off with LTC insurance, some people will not buy it for whatever reason.

So, use another tool in your toolbox to help them.

 

[J2727]

So, are you saying your strategy would be to encourage them to deplete the equity in their home(a Medicaid protected asset) to buy GUL( a non protected Medicaid asset). Even with the Medicaid asset issue, wouldn't they eventually be in bad shape long term as the reverse mortgage loan amount compounds but the GUL evaporated the little cash value it may build? Then, could the surviving spouse be able to afford the ongoing GUL premium if they were the one insured but didn't die? I am open to lots of strategies, just not following this one or figuring out the unicorn it may apply to

It's not a unicorn; it's just another alternative strategy similar to annuities that have some LTC benefits.

I don't get what you people don't understand about alternatives to traditional LTC insurance.

Did I say it should be in place of LTC insurance? No. Just alternatives for a client who doesn't want LTC insurance, but you can still help them cover LTC costs with alternative strategies.

You can't force a client to buy LTC insurance, no matter how well you explain it to them.
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Who cares if Medicaid will cover LTC and the home is protected, people don't want to go to a nursing home, which is what Medicaid pays for.

The whole point is to stay OUT of the nursing home.
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Regarding the home equity, the whole point is to use the home equity for LTC if needed. Get the reverse mortgage at 62 and let the line of credit grow over time. It compounds every year at whatever the interest rate is.

If they have a $400,000 house and get a $200,000 line of credit at 62 years old, at a 5% interest rate:

- in 15 years they have $415K
- in 20 years they have $530K
- in 25 years they have $677K​

And even if they pull money out of the line of credit, it still keeps growing. They may even get to a point where the line of credit growth for the year just about equals what they pull out for LTC costs.

If they don't need LTC, then the home is passed to the kids free and clear.
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Regarding the premiums for the GUL (no cash value, just death benefit), make sure the client has enough guaranteed income coming in to cover the premiums for life, even if one spouse dies. A single premium could also be used.

 

[Tothetop]

You are trying to create a solution for a problem they don't want solved...

 

[J2727]

You are trying to create a solution for a problem they don't want solved...

Not necessarily.

They want it solved, but don't want LTC insurance for whatever reason. It could be not wanting to pay the premiums for something they want might never need, afraid of rate hikes for regular LTC, can't see themselves ever needing it, etc.

Using one of the alternative strategies still gives them LTC protection, but also gives them a true benefit if LTC is not needed (either a large death benefit, a home free and clear to the kids, an annuity that has grown in value, etc.).

LTC insurance is best. However, if the client sees the LTC need but doesn't want LTC insurance, then use other tools in your toolbox to help them.

 

[Tothetop]

Not necessarily.

They want it solved, but don't want LTC insurance for whatever reason. It could be not wanting to pay the premiums for something they want might never need, afraid of rate hikes for regular LTC, can't see themselves ever needing it, etc.

Using one of the alternative strategies still gives them LTC protection, but also gives them a true benefit if LTC is not needed (either a large death benefit, a home free and clear to the kids, an annuity that has grown in value, etc.).

LTC insurance is best. However, if the client sees the LTC need but doesn't want LTC insurance, then use other tools in your toolbox to help them.

I'm not going to lie, when I reread what your saying its sounds like your on to something. Its like your giving them the benefits of life insurance and long term care insurance all in one. Its as though if they never need LTC, they have a death benefit in place. Am I correct?

 

[J2727]

I'm not going to lie, when I reread what your saying its sounds like your on to something. Its like your giving them the benefits of life insurance and long term care insurance all in one. Its as though if they never need LTC, they have a death benefit in place. Am I correct?

Yes. It's multiple benefits in one.

One doesn't affect the other - the life insurance doesn't affect the line of credit for LTC purposes, and vice versa. Neither is reduced by the other. And no premiums are potentially wasted.

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They still use leverage, so they're not self-insuring LTC costs.

This strategy still uses leverage from the life insurance (GUL) and the reverse mortgage line of credit that grows over time no matter what.​

They get to protect the home equity with the GUL (or most of the equity).

The GUL protects the inheritance to the children since they might use their home equity for LTC costs.​

They don't pay premiums that they could potentially waste (for the LTC policy).

They pay a premium (single, monthly, etc.) for the GUL, but it's different from paying premiums for LTC insurance.

In this case, the premiums guarantee a large death benefit.

For LTC insurance, the premiums are for the LTC. However, if they never need the LTC, they wasted the premiums.
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The death benefit isn't reduced by LTC.

Even with a hyrbid LTC policy, the death benefit is small and really just kind of a return of premium. And the death benefit gets reduced dollar-for-dollar if any LTC money is used.

And with a life insurance policy with an acceleration of the death benefit for a terminal illness or LTC purposes, the death benefit is reduced so the heirs (kids most likely) get less.​

If they don't use the reverse mortgage line of credit, the inheritance to the kids will be even larger.

The equity won't be touched.​

Annuity options require a lump sum.

The FIA+indexed rider that doubles the payments for several years if LTC is needed needs a lump sum initial payment. And the doubling payments still reduces the principal balance of the annuity. So if you canceled the annuity, you'd get back less. So, while this is a LTC benefit, it's not really leverage for LTC purposes.

The deferred annuity that triples the principal for LTC purposes also needs a lump sum.

The GUL can be paid monthly and still has the death benefit from day one. And your home equity is already there. Your home just needs to be in an area that is approved for reverse mortgages.​

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Someone could also sell their home and use their social security and savings (or interest on savings) to pay for an ALF. But there's no leverage being used here.

Someone could also buy a deferred income annuity (DIA) and have it annuitize at like 75 or 80 or so, when they will most likely start to need care. But that also requires a lump sum. It also doesn't really use leverage either. Well, some leverage due to the "mortality credits" of the DIA, but not the leverage that could be had elsewhere.
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The GUL + Reverse Mortgage line of credit strategy is just another strategy for LTC.

Someone could even use the reverse mortgage line of credit to pay for the LTC insurance premiums. But then you run into the same problems if the person doesn't want the LTC insurance for whatever reason.

 

[Tothetop]

Yes. It's multiple benefits in one.

When you put it like that, it sounds very interesting. It sounds like your solution is kind of like a hybrid, like a hybrid car for example. Gas or electric, life insurance or ltc. Dude, you are definitely on to something!

 

[Tothetop]

One doesn't affect the other - the life insurance doesn't affect the line of credit for LTC purposes, and vice versa. Neither is reduced by the other. And no premiums are potentially wasted.

Wow, I really like that part. So the premiums technically are never wasted because either way your getting life insurance or ltc protection. I kid you not, I can actually see someone looking for a solution that offers that type of benefit.

 

[J2727]

Wow, I really like that part. So the premiums technically are never wasted because either way your getting life insurance or ltc protection. I kid you not, I can actually see someone looking for a solution that offers that type of benefit.

But it's a real life insurance death benefit (a large one), not the smaller life insurance death benefit in hybrid policies.
And remember, for a hybrid policy or accelerated death benefit policy, If the LTC is used it reduces the death benefit.

So, the GUL+Reverse Mortgage strategy is a way to get both, or everything actually.

- No wasted premiums
- LTC benefits if needed
- protected inheritance for the kids (no reduction in in the inheritance for the kids if LTC is used)
- leverage from the GUL and reverse mortgage line of credit
- a larger inheritance for the kids if the line of credit is not used or barely used​

It's just another way to cover LTC costs.

I think many people would prefer this strategy over LTC insurance.

LTC is a tough sell. Many people can't see themselves ever getting old and frail enough to need it, they don't want to potentially waste premiums, or possibly deal with rate increases (for regular LTC).

This strategy may be a simpler way to cover potential LTC costs and a much easier sell to a client.

They do have to qualify for the GUL, so the younger they do it the better.

And they need time for the line of credit to grow. They shouldn't wait until their 75 to get one. They'll have more money available due to the compounding growth rather than wait until they're older to get the line of credit.

 

[Allen Trent]

But it's a real life insurance death benefit (a large one), not the smaller life insurance death benefit in hybrid policies.
And remember, for a hybrid policy or accelerated death benefit policy, If the LTC is used it reduces the death benefit.

So, the GUL+Reverse Mortgage strategy is a way to get both, or everything actually.

- No wasted premiums
- LTC benefits if needed
- protected inheritance for the kids (no reduction in in the inheritance for the kids if LTC is used)
- leverage from the GUL and reverse mortgage line of credit
- a larger inheritance for the kids if the line of credit is not used or barely used​

It's just another way to cover LTC costs.

I think many people would prefer this strategy over LTC insurance.

LTC is a tough sell. Many people can't see themselves ever getting old and frail enough to need it, they don't want to potentially waste premiums, or possibly deal with rate increases (for regular LTC).

This strategy may be a simpler way to cover potential LTC costs and a much easier sell to a client.

They do have to qualify for the GUL, so the younger they do it the better.

And they need time for the line of credit to grow. They shouldn't wait until their 75 to get one. They'll have more money available due to the compounding growth rather than wait until they're older to get the line of credit.

Do you put the GUL on both spouses or use a 2nd to die? Who pays the GUL premium when they go into the nursing home or will their income be able to handle those premiums while receiving care or after 1st spouse dies.

I would have to see an example with real premiums & real reverse mortgage projections. I am guessing it might look good in current low interest environment, but not so good if the line of credit rates increase at same time house values devalue in the next bubble.

Will your E&O cover you for advice on reverse mortgages/lines of credit?