LTC Alternative --- GUL + Reverse Mortgage

[J2727]

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

If you get the RM line of credit at 62, it should have built up some by age 67 (using your example). So, if the rate is 5%, then let's say $200K at 5% compounded for 5 years is $255K.

Of course, the more time it compounds the better.

Also, 67 is young for a LTC need, but I see what you're saying.
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The RM line of credit will keep growing even if you pull money from it. Any unused money will keep growing at the rate.
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You don't need a GUL on both spouses if the GUL is for legacy purposes. One spouse is fine.
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This is just one alternative strategy to cover LTC costs for someone who won't get regular/hybrid LTC (doesn't want it or doesn't qualify).

There are several alternative strategies other than regular LTC or hybrid LTC.

An alternative strategy is better than no strategy at all.

 

[fed up]

If you pull 200K in order to get to 255K but need to subtract 70K after the 5th year, you are now gaining 9250 in the next year, which makes the RM last about 4-5 years. i see your idea but it only works if the person does not need the care for many years. If you don't have a GUL on both people this doesn't work if the patient is the one with the policy and the partner is not in the greatest health. Most spouses fail while caring for a loved one at home

 

[CALTCAgent]

Yes, get it before, if possible.

What if the housing market collapses or reverse mortgages change for the worse in the future ? At least they have the GUL in place ?

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

Well we aren't out of strategies, since this was an alternative for people who don't want LTC. I guess they still have the reverse mortgage.

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

If they don't qualify for LTC because of health, likely GUL or any other life they won't qualify for a good enough health rating to get a policy that they feel is affordable and/or provides enough leverage fitting the premiums into their budget.

 

[fed up]

This also only works for someone with substantial equity in their home. Prior to 2008 people were ADVISED to take equity out of their homes and invest it into the market. Well, that did not work so well for fr too many people. this doesn't work unless there is sufficient time to accrue after the RM. Agent makes a commission and client could be left holding the bills from LTC

 

[Allen Trent]

If you pull 200K in order to get to 255K but need to subtract 70K after the 5th year, you are now gaining 9250 in the next year, which makes the RM last about 4-5 years. i see your idea but it only works if the person does not need the care for many years. If you don't have a GUL on both people this doesn't work if the patient is the one with the policy and the partner is not in the greatest health. Most spouses fail while caring for a loved one at home

I am not sure this is a iron clad solution strategy as you point out, but maybe more of a sales strategy. Some might say it is "better than nothing". however, committing to a GUL that they later bail out on keeping might be worse than nothing. The carriers know the stats on people keeping UL or any product, so odds are in favor of the policy not staying on the books until payout because they forgot why they bought it & get a $5k bill & decide not to pay or have dementia or are institutionalized at the time the bill comes.

it is a possible solution for the right unicorn that hates LTC & hybrids but will like GUL & RM & can get approved for policies, etc

 

[Allen Trent]

Agent makes a commission and client could be left holding the bills from LTC

maybe 2 commissions if the same person writing the GUL also is the RM broker.

 

[J2727]

If you pull 200K in order to get to 255K but need to subtract 70K after the 5th year, you are now gaining 9250 in the next year, which makes the RM last about 4-5 years. i see your idea but it only works if the person does not need the care for many years. If you don't have a GUL on both people this doesn't work if the patient is the one with the policy and the partner is not in the greatest health. Most spouses fail while caring for a loved one at home

Yes, there needs to be time for the RM line of credit to compound.

But again, using your example of 67, that's young for needing LTC.
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You're also using a high number for LTC costs - $70-$100K /year for a live-in aide.
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Run the numbers at 75+ and see the difference.
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Why do you need a GUL on both people?

Like I said, one is enough. It;s the amount of the GUL that's important. The death benefit is going to the kids not the other spouse so a GUL on each spouse is not needed.
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You can continue to polk holes in the strategy.
But it's just an alternative strategy. It's not perfect.
No strategy is.

The question is... how can you help a client who wants to protect against possible LTC costs but won't get LTC insurance?

Use one of the alternatives. It's better than nothing.

 

[J2727]

What if the housing market collapses or reverse mortgages change for the worse in the future ? At least they have the GUL in place ?



Well we aren't out of strategies, since this was an alternative for people who don't want LTC. I guess they still have the reverse mortgage.



If they don't qualify for LTC because of health, likely GUL or any other life they won't qualify for a good enough health rating to get a policy that they feel is affordable and/or provides enough leverage fitting the premiums into their budget.

You don't understand how reverse mortgages work. The housing market doesn't affect the RM line of credit growth. Read my previous posts. I;m not going to explain again.
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If they don't us this strategy and don't want to get or can't qualify for regular or hybrid LTC, then they have to use an annuity strategy or a life policy with an acceleration of death benefit. I also mentioned those in previous posts.
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Sure, if they can't qualify for LTC then they most likely won't qualify for a GUL either.

Some people do qualify for LTC, but just won't get it.

 

[fed up]

This is a scheme, not a strategy. How do you help this person? some people can't be helped. The CPA and attorney representing my FIL convinced him that he had no need for LTC because his assets were sufficient. Over 250,000 was paid within the next 3 years to LTC out of those assets. He would have paid less than 10,000 in premium before the policy would have kicked in and covered those 250,000 long term dollars. I only hope that the CPA's family goes through their net worth before they die because, his words,"Insurance agents only want to sell policies"

 

[J2727]

This also only works for someone with substantial equity in their home. Prior to 2008 people were ADVISED to take equity out of their homes and invest it into the market. Well, that did not work so well for fr too many people. this doesn't work unless there is sufficient time to accrue after the RM. Agent makes a commission and client could be left holding the bills from LTC

Actually, no...

67 or younger is very young for an LTC event

Yes, the more time the RM line of credit accrues, the better.
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I mentioned this in previous posts so I'm not going to explain that much here.

This strategy uses the home equity like any other asset they have. They will use some leverage (the RM line of credit) and spend down their home equity asset like any other asset.

Worst case scenario, if they spend all the money and don't have any other money, then they could go on Medicaid for LTC.

That's unlikely to happen because once an LTC event is triggered, the person won't like much longer. You're not going to have 10 years of LTC. The average LTC event is under 3 years I believe.