Long-Term Care Insurance and Reverse Mortgages

Long-Term Care Insurance and Reverse Mortgages are two totally different products. They are two totally separate industries. But when combined, they can literally bring Long-Term Care Insurance to millions of people that may otherwise not be able to afford it.

Reverse mortgages can be a financing option for Long-Term Care Insurance that can help make the affordability of LTC Insurance available to many more people, perhaps you.

Long-Term Care Insurance has always been marketed heavily towards the upper-middle-class income consumer. The upper-middle-class, aka the mass affluent, is loosely defined as individuals with a net worth or investable assets between $500,000 to $2 million.

Some also define the upper middle class as those who are college-educated with incomes in the top 15%. A top 15% income is roughly $100,000 or greater for households or $65,000 or greater for individuals.

The Middle-Class is Different 

You probably already know the middle class is different from the upper-middle class. The Pew Research Center defines the middle class as those earning between 67% and 200% of the U.S. median household income. That is between $42,330 and $126,358, using the U.S. Census Bureau's 2018 median income of all households.

We can also define the middle class in terms of net worth. According to the U.S. Census data, the average net worth for U.S. households in 2016 (latest data available) was $299,700. In other words, wealth is concentrated at the top.

No wonder the Long-Term Care Industry concentrates its marketing efforts towards the top! What about you? In this author's opinion, middle-income families need Long-Term Care Insurance the most! A 2019 Survey of Consumer Finances shows that the average retirement savings for all families is only $255,130.00! 

The Money in Your Home

Since the above figures do not include home equity, it is clear that the great majority of seniors have much, if not the great majority of their net worth, trapped inside their home. And the term that "trapped equity" is being referred to as is "housing wealth."

A Forbes article published in 2019 quotes a study that says eight million middle-class income seniors will struggle to afford housing. 

The author, Bruce Japsen, writes, "More than half of U.S. seniors considered "middle income" won't be able to afford assisted living and other forms of senior housing a decade from now, according to new research published Wednesday in the journal Health Affairs."

The study, led by NORC at the University of Chicago and researchers from Harvard Medical School, shows a critical void in future U.S. housing needs at a time when more than 10,000 baby boomers are turning age 65 each day.

Though the housing market for Americans in need of assisted and independent living has greatly expanded, the cost is often out of reach for an increasing number of people considered middle income who are 75 and older.

Planning for the Future Costs and Burdens of Aging is Essential

These numbers are exactly why middle-income seniors need to have the protection of Long-Term Care Insurance today! These facts are precisely why Long-Term Care Insurance and Reverse Mortgages can work together to offer the asset protection and other benefits to those who may otherwise not afford a plan for long-term health care.

With the latest figures topping $18 trillion (yes, trillion) in home equity in the United States, it appears that millions of homeowners between the ages of 55 and 75 certainly have a funding source to purchase Long-Term Care Insurance but have not discovered a way to tap into it.

Now, let me be clear, a reverse mortgage is not the only option for a consumer to tap into their home equity. In fact, since the ideal age for purchasing Long-Term Care Insurance is in your fifties, a reverse mortgage is not even an option since you must be aged 60 or older to obtain a reverse mortgage.

Options Available for Those in Their 50s and 60s

If you are in your fifties and into the sixties, there are options available for you. Let us look at those options.

• Refinancing the present mortgage- 

With interest rates at a 30-year all-time low, it may be very possible to refinance your current mortgage to a much lower interest rate, thus "creating the needed cash flow" to afford a Long-Term Care Insurance policy.

• A Debt Consolidation Loan – 

This is another form of a refinance, but not necessarily to decrease your present interest rate. The pure goal here is to consolidate debts that you may have accumulated over the years. 

These debts could include but not be limited to:

• • high-interest rate credit cards
  • auto loans 
  • second mortgages 
  • student loans 
  • home improvement loans 

It is not uncommon to save hundreds, and sometimes into the thousands of dollars per month, with a loan of this type. This gives otherwise cash flow scrapped individuals the needed cash flow to purchase LTC Insurance and additional cash flow for other needs as well. 

• A Home Equity Line of Credit (HELOC) – 

Some seniors have paid their home off and currently have no mortgage. They can establish a HELOC. This type of loan is usually "prime sensitive" and will obligate the client to a monthly payment. This type of loan also always has a "call feature," making the entire balance due at some point in time in the future. 

• A Reverse Mortgage – 

With the minimum age of at least one of the borrowers needing to be 60 years old, this option clearly comes with a few advantages over our other choices. So, let's take a look at some of these advantages:

• • There is no obligation to make a monthly principal and interest payment.

• • If used to eliminate your present mortgage payment, the savings in most cases will exceed the cost of the Long-Term Care policy you are purchasing. Thus, in many cases, you have the additional cash flow to maintain or increase your quality of life.

• • If used to eliminate your present mortgage payment and other outstanding debts, the result could very easily change the entire landscape of your retirement.

• • If you prefer to purchase a single premium insurance product (hybrid Long-Term Care Insurance), there would be no monthly payments on policy whatsoever. The many options offered with these types of policies, such as life insurance, may very well offset the cost of the reverse mortgage.

• • If you establish a reverse mortgage line of credit, the unused portion of that credit line will continue to grow, resulting in a very strong hedge against inflation. 

• • If you are a middle-income American, you can enjoy the same protections throughout the retirement segment of your life, as an upper-income American, without it affecting your monthly cash flow!

Don’t Ignore Long-Term Care Planning – You May Have Options

Most people today understand the need to have some plan to address changing health due to a future illness, accident, or the impact of aging. The costs of long-term health care services continue to increase and adversely impact your income, assets, lifestyle, and legacy. Plus, the stress and burdens that can be placed on your family.

Planning is essential. Now, you may have additional funding options so you can enjoy the peace-of-mind and asset protection that a long-term care plan provides.

Don’t forget to watch my TV show “62 Who Knew” as we discuss many topics related to aging, finances, long-term care and more – visit the show’s website and watch shows online!

*Please note that all mortgage options discussed in this article are based on, but not limited to, qualifications of the borrower(s), equity in the property, and current interest rates. Please note current rates and terms are subject to change without notice.

Don't miss my next article - how people with millions of dollars in equity in their homes can access a portion of those millions to fund their retirements.