Using a reverse mortgage in conjunction with long-term care insurance

Using a reverse mortgage in conjunction with long-term care insurance

Long-term care insurance is designed to protect people from incurring the full cost of nursing home, assisted living or home health care, which can run as much as $80,000 to $90,000 annually.

Many seniors want the protection offered by long-term care insurance but can’t fit the premiums into their current budget. A reverse mortgage can help.

A couple, both age 62 and in decent heath, will likely pay $3,500 to $4,000 a year in premium for long-term care insurance policies. If the couple owned a $250,000 with no mortgage payment, they could obtain a reverse mortgage that would pay them around $600 a month for as long as they live in their home, which would cover the quoted LTC insurance premium with some left over.

Even if you can afford the cost of insurance initially, that may change if your income declines, some of your other expenses increase, or the cost of your LTC premiums increase. In these situations, you can potentially turn to reverse mortgage proceeds to continue paying the insurance premium.

With approval from state insurance departments, insurance companies can raise premiums on a block of policies (they can never raise just one person’s premium). Five or 10 years after you bought the policy, you may experience an increase in premium of anywhere from 5 percent to 25 percent. In some cases, insurance companies have been given approval to raise rates by 40 percent.

In addition to helping seniors pay for long-term care premiums, a reverse mortgage can help them bridge the gaps that often exist between the total cost of care and what the insurance covers

Many long-term care policies will pay a maximum daily, weekly, or monthly amount for care. If you have a policy that pays up to $200 a day in benefits and require care that costs $125, the insurance company will pay $125. If your care costs $250 a day, you will receive $200 in coverage per day.

This type of policy will also specify how long the insurance company will pay benefits. It may be a set number of years; some will provide a lifetime option. The more the per-day benefit and the longer the insurance company has to provide benefits, the higher your premium.

Instead of setting a daily maximum with a time limit, some policies will establish a lifetime maximum coverage amount. Once the insured uses up that maximum, coverage for care will cease. These are called indemnity policies.

If your care ends up costing more than your policy will pay for, a reverse mortgage can help you make up the difference.

Reverse mortgage funds can also help you cover the costs you must pay out of pocket during the policy’s waiting, or elimination, period. This is similar to a deductible on other types of insurance in that it requires the insured to pay the initial costs out-of-pocket. For long-term care, you may have an elimination period of anywhere from zero to 100 days.

Any care provided during the elimination period is paid out-of-pocket. Insurance coverage will begin the day after this period.