LTC Alternative --- GUL + Reverse Mortgage

[Tothetop]

To be honest I was hoping you would notice I was being tongue in cheek.

Your solution sounds like it has been done and done better than what your presenting. The guarantees, the life insurance or LTC insurance, the no wasted premium...you might as well be presenting hybrids.

If a person is not going to buy LTC and that same person is not going to buy hybrid LTC, you really think they are going to buy a GUL AND get a reverse mortgage? Seriously???

 

[J2727]

Do you put the GUL on both spouses or use a 2nd to die?

You can choose whichever GUL option that's best for the client. The 2nd to die would be cheaper if it's a couple.

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 already answered you last time. Just make sure they have enough guaranteed income coming in to cover any GUL premiums (as well as any other expenses). A single premium GUL is also an option, or a 10-pay, etc.

If an elderly person can't manage their finances (paying bills, etc.), then obviously they need help from adult children, bill pay services, etc. This is true even without the use of this GUL+RM strategy or any other insurance bill that involves paying premiums (like regular LTC insurance, or home insurance, etc.).

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.

Based on this question, I'm not sure you understand how reverse mortgages work, especially the line of credit.

Any money pulled from a reverse mortgage, including the line of credit, doesn't have to be paid back until the home is sold or the borrower/spouse dies (and then the home is sold). The interest on the borrowed money accumulates over time.

The unused portion of the line of credit grows over time too (every year), regardless of what the value of the home is or of the overall real estate market. So the market could crash and the home could actually be worth 50% less and it wouldn't matter. The
line of credit will continue to grow every year.

If interests go up, that would actually be good for the line of credit. Whatever the interest would be if you did pull money out is the same interest rate the unused portion of the line of credit would grow by every year.

I would have to see an example with real premiums & real reverse mortgage projections.

You don't need a spreadsheet style example.

This is an alternative strategy for people who don't want to pay premiums for regular or hybrid LTC insurance.

People use a GUL for estate planning all the time - to leave an inheritance, pay estate taxes, etc.

Then the person could use a reverse mortgage line of credit as a way to pay for LTC costs if need be.

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

Probably not, but you wouldn't be the one doing the reverse mortgage. If you were, then you'd need E&O as a mortgage broker.

However, if you were a financial planner and an RIA, then that E&O would cover reverse mortgages since reverse mortgages can be part of many retirement planning strategies.

 

[J2727]

To be honest I was hoping you would notice I was being tongue in cheek.

Your solution sounds like it has been done and done better than what your presenting. The guarantees, the life insurance or LTC insurance, the no wasted premium...you might as well be presenting hybrids.

If a person is not going to buy LTC and that same person is not going to buy hybrid LTC, you really think they are going to buy a GUL AND get a reverse mortgage? Seriously???

It's an internet forum, I can't figure out what kind of tone you're using. If you're going to play games, then just don't respond. What are you, 15?

If you can't see the value in having alternative strategies to solve financial problems, like LTC costs, then just ignore the posts that talk about them.

Your only answer to everything I said is "then sell them hybrid policies".
Many people simply won't pay premiums for regular or hybrid LTC policies.

I'm not so sure you even fully understand how reverse mortgages work.

And to answer your question... yes, they would get a GUL and RM since the premiums won't potentially be wasted. The potential waste of the premiums is the main concern people have with LTC insurance.

If you're just an insurance person, or more strictly an LTC insurance person, then I get it. It's your only tool. But from a retirement planning perspective, there are more ways to solve for LTC costs than regular or hybrid policies.

Anyway, I'm done having this discussion with you, since you're just clowning around anyway. Try to sell your people hybrids and I'll go be a real planner.

 

[Tothetop]

It's an internet forum, I can't figure out what kind of tone you're using. If you're going to play games, then just don't respond. What are you, 15?

"It sounds like a hybrid, a hybrid car..."

Take your head out the clouds man and stop trying to reinvent the wheel.

If you can't see the value in having alternative strategies to solve financial problems, like LTC costs, then just ignore the posts that talk about them.

Thats your problem. LTC is NOT a financial problem. It is a life event that can have financial consequences. Just like death is a life event that can have financial consequences. Just like a car accident is an event that can have financial consequences. Focus on the event first than the costs.

The ONLY RIGHT solution is to offer them something that would make them whole again IF such an event AND its consequences ever occurred. The only product that can do that is insurance. Life insurance for death, LTC insurance for LTC, and Car insurance for car accidents.

This is not financial or retirement planning like investments or 401ks or FIA or IRA's. Yes such a person can offer solutions for LTC but they typically, not always, offer it as a commodity. Totally different mindset from an insurance agent having the conversation or making the offering.

 

[J2727]

"It sounds like a hybrid, a hybrid car..."

Take your head out the clouds man and stop trying to reinvent the wheel.



Thats your problem. LTC is NOT a financial problem. It is a life event that can have financial consequences. Just like death is a life event that can have financial consequences. Just like a car accident is an event that can have financial consequences. Focus on the event first than the costs.

The ONLY RIGHT solution is to offer them something that would make them whole again IF such an event AND its consequences ever occurred. The only product that can do that is insurance. Life insurance for death, LTC insurance for LTC, and Car insurance for car accidents.

This is not financial or retirement planning like investments or 401ks or FIA or IRA's. Yes such a person can offer solutions for LTC but they typically, not always, offer it as a commodity. Totally different mindset from an insurance agent having the conversation or making the offering.

Nope. You're the one with the problem if you think LTC can only be solved with regular or hybrid LTC insurance.

Don't respond to my posts next time. Go play games elsewhere.

 

[Allen Trent]

Nope. You're the one with the problem if you think LTC can only be solved with regular or hybrid LTC insurance.

Don't respond to my posts next time. Go play games elsewhere.

I agree it can be paid in many different ways including cash, regular LTC, hybrids, Medicaid.

I am still struggling with why someone would borrow to pay for the cost by taking an asset that is protected from the Medicaid Spend down & turning it into cash (by way of loan) to pay for the care.

is your example or idea based on people that have other sizeable assets or a tremendous amount of home equity?

If someone has $200,000 in IRA funds & say $200,000 in home equity. are you thinking getting a reverse mortgage LOC to pay the $10k per month nursing home would be more efficient than merely paying the $10k out of the IRA? Just curious as I am struggling still to see how taking an asset (home equity) that is protected from spend down, has no income tax or capital gains tax due at death is better than spending unprotected assets like IRA/Annuity money that is taxable at death either fully or on the deferred gains.

basically, who is the market for this concept that would be unwilling to consider LTC or hybrids but they will be willing to pay all the costs & add a lender to their home and be underwritten for a life contract. I just think those same consumers against paying for LTC policies or too confused by hybrids will be the same consumers who are debt averse that they are not going to add a lender to their deed or pay GUL premiums & be OK with th GUL not building cash value that they would like to see.

I am still open to the concept if it can help someone in desperation planning that doesn't have other options, I just cant grasp it fully

 

[J2727]

I am still struggling with why someone would borrow to pay for the cost by taking an asset that is protected from the Medicaid Spend down & turning it into cash (by way of loan) to pay for the care.

The home is protected from Medicaid spend down, but if they have too much income coming in, then they won't qualify for Medicaid anyway.

Also, as I mentioned before, it doesn't matter if Medicaid pays for LTC. Medicaid only covers nursing homes. Nobody wants to go to a nursing home, even if the government pays for it.

I am still struggling with why someone would borrow to pay for the cost by taking an asset that is protected from the Medicaid Spend down & turning it into cash (by way of loan) to pay for the care.

You're looking at it as if they're "borrowing" their home equity. Technically, yes that's true.

But, they're actually just spending down their home equity. They wouldn't care if they use up all their home equity because the inheritance to the kids is already set (the GUL). If they don't have kids, then no GUL.

So, their home equity is theirs to use for retirement. They may spend it on trips, a second vacation home, to help cover costs while delaying Social Security, use during stock market downturns, future LTC costs, etc.

It's just another tool for retirement.

It's like any other cash asset they have. However, if they get the line of credit, it'll grow over time. And it's non-recourse(can never owe more than house is worth). And they don't have to make payments while they're alive.
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People could also downsize, live with others in a group-style communal home, etc. But if they want to stay in their home, their equity is an asset that can be used in many ways in retirement, including future LTC costs.

is your example or idea based on people that have other sizeable assets or a tremendous amount of home equity?

There's two scenarios where people would do this specific GUL+RM strategy (or simply the RM line of credit by itself if they don't have kids):

1) the bigger % their home equity is relative to their net worth

If they have $2mm and a paid off $500K house, and don't spend a lot, they don't need to do it. They have enough money. Although maximizing what they have with leverage wouldn't hurt.

If they have $300K and a paid off $300K house, the situation is different. They need to maximize every asset they have, including their home equity.
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2) people who won't pay for LTC insurance for whatever reason​

You seem to really be struggling with the fact that some people want to plan for LTC costs, but won't pay for LTC insurance. So, they need alternatives.​

If someone has $200,000 in IRA funds & say $200,000 in home equity. are you thinking getting a reverse mortgage LOC to pay the $10k per month nursing home would be more efficient than merely paying the $10k out of the IRA? Just curious as I am struggling still to see how taking an asset (home equity) that is protected from spend down, has no income tax or capital gains tax due at death is better than spending unprotected assets like IRA/Annuity money that is taxable at death either fully or on the deferred gains.

You're struggling with this because your premise is to use Medicaid for LTC and protect the home. Yes, that could work. Well, the person can only have so much income too.

If they qualify and don't mind going to a nursing home later, then great. Do that.

Using your scenario above... yes, you're right. Use all their money and pay for care and then go on Medicaid, while protecting the home for an inheritance.

But what if they don't want to go to a nursing home and/or make too much income to qualify for Medicaid? And they want to plan for LTC costs and have some assets (cash, home equity, etc.), but just don't want to pay for LTC insurance for whatever reason?

So, how can you help them cover LTC costs then. You have to use one of the alternative strategies.

Maybe they don't want the GUL+RM line of credit strategy. Maybe they'll go with the life insurance with acceleration of death benefit, or the annuities, etc.

They need some leverage, though, to maximize what they have. The RM line of credit still uses some leverage since it grows over time no matter what.
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Or even use the RM line of credit to pay for LTC insurance. This would not eat into their cash flow. Again, they would be using their home equity as an asset like an IRA, non-qualified money, etc.
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They could also have the RM line of credit in addition to other strategies for LTC. For example, if they needed guaranteed income and got a FIA+Income rider (with the doubling of income for several years if LTC is needed), they would use that first for LTC and the RM line of credit could just be a supplemental way to cover LTC.

basically, who is the market for this concept that would be unwilling to consider LTC or hybrids but they will be willing to pay all the costs & add a lender to their home and be underwritten for a life contract. I just think those same consumers against paying for LTC policies or too confused by hybrids will be the same consumers who are debt averse that they are not going to add a lender to their deed or pay GUL premiums & be OK with th GUL not building cash value that they would like to see.

Anyone who is unwilling to pay for LTC insurance, but knows they need to plan for LTC. They need one of the alternative strategies.

I don't know why it's so difficult for you to grasp that some people simply won't pay for LTC insurance.
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A reverse mortgage is not "debt" in the traditional sense. You pay nothing back while alive. It allows you to stay in your home while using your home equity. The line of credit is the best feature (grows automatically over time).
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It doesn't have to be a GUL. The point is to protect the inheritance to the kids if they were planning on leaving their home to the kids. Any permanent policy will do. You can have a permanent policy with cash value that grows over time too if that's what they want.
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By the way, using a GUL or other permanent policy to leave an inheritance is a common practice. It frees people up to spend the rest of their money on themselves while the inheritance to their children is taken care of (using the leverage of the GUL).

I am still open to the concept if it can help someone in desperation planning that doesn't have other options, I just cant grasp it fully

It's not desperation planning; it's regular retirement planning.

Using a reverse mortgage is not a desperation technique. It can be used in many different ways as I mentioned before.

Those who do have a RM use it as any other retirement asset.

Some people even get a RM for guaranteed income. They choose the "tenure" option and get a check every month for a long as they live, like an annuity. And it doesn't matter what happens to the value of the home or market.

I am still open to the concept if it can help someone in desperation planning that doesn't have other options, I just cant grasp it fully

I'm not sure why this is so difficult for you to get.

It's just an alternative strategy to cover LTC costs without using LTC insurance. Just like life insurance with an acceleration of the death benefit, or the annuities, etc.

 

[CALTCAgent]

It doesn't have to be a GUL. The point is to protect the inheritance to the kids if they were planning on leaving their home to the kids. Any permanent policy will do. You can have a permanent policy with cash value that grows over time too if that's what they want.

You mentioned getting the GUL early. So you would get the GUL before the reverse mortgage if possible ?

I have looked at GUL many times for people that were interested in LTC solutions and most of the time they couldn't afford the premiums because of their health rating and of course combined with age. Many people motivated to look at LTC solutions have a few health issues and GUL didn't provide enough leverage for the cost.

 

[J2727]

Yes, get it before, if possible.

If they can't qualify, then you have to use another strategy to cover possible LTC costs.

If they don't qualify for regular LTC either, then one of the other alternative strategies would have to be used.

 

[fed up]

Only problem I see with this strategy is that the reverse mortgage needs to be in place for some time to accumulate the build up needed for LTC. A LTC policy pays as soon as the care is needed so if the 60 ish person has a need at 67 the policy stops billing for premium and starts paying the benefit. Reverse mortgage has not had much time to accumulate in that short time frame. You also need GUL on both partners so a much higher premium. LTC, even in home, can be upward of 70-100K for a live-in. Your equity could be gone before a LTC benefit is used up