Reverse Mortgages and Long-Term Care Insurance
July 9th, 2008
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I saw an interesting item only regarding reverse mortgages and the purchase of long-term care insurance. Entitled, Seniors and Reverse Mortgages: Taking a Look at the Road Ahead, the material is written by Valerie VanBooven
Ms. VanBooven offers an interesting example regarding the use a reverse mortgage to fund long-term care insurance.
“Mary and Joe Brown live in St. Louis, Missouri and are both 65 years old. They own a home worth $200,000. Both are in good health. They are interested in a 5 year long-term care insurance plan, with compound inflation protection, and a 90-day elimination period (waiting period). They chose $150 per day coverage because they have other income and assets to make up for any shortfall. The average cost for a nursing home bed in 2008 is around $206 per day.
“The annual premium total for both to have coverage is $5460.
“The Browns are eligible to receive $605 per month for life from the equity in their home (a reverse mortgage), or a lump sum of $99, 657, or any combination of the two.
“They can also leave the $99,657 in a line of credit.. This means that if they didn’t need the extra cash for any reason, they could take approximately $6328 annually out of their line of credit to pay for their long-term care insurance premium.
“Alternatively, they could pay their monthly premium of $455 with the $605 monthly check that they would receive from the reverse mortgage lender.
“Either way they have protected themselves from the catastrophic expense of long-term care without touching a penny of their savings, investments, or current income.”
This is an interesting example, especially in the context of figures cited by Ms. VanBooven showing that today a semi-private room in a nursing facility will cost $183 per day while home care aides receive $19 an hour.
My concern is that the Browns in the example given they may well be under-insured. Why? Because the costs we have today may be far less than the costs we have. Just think of where costs were 10 years ago and where they may be in the future.
As always with reverse mortgages, please speak with an independent counselor such as an attorney who specializes in elder law before considering a reverse mortgage or other financial products tied to one’s senior status.
For the full story, please go to: Seniors and Reverse Mortgages: Taking a Look at the Road Ahead
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