Reverse Mortgage to Pay Premium on SPWL

[Crabcake Johnny]

Should be much ado about nothing since this likely would never pass the mandatory education the senior/homeowner must go through before a reverse mortgage.

Likely when the senior tells the counselor that the only reason they're thinking about it is because an insurance agent suggested it to buy a SPWL they'd be turned into the DOI for investigation.

I'm guessing, but it's a good guess.

 

[bluemarlin08]

Does the client have LTCi? I guess they could just ride the medicaid wagon for care.

 

[VolAgent]

Does the client have LTCi? I guess they could just ride the medicaid wagon for care.

Interesting issue. As I understand it, the client would have to liquidate the SPWL for Medicaid spenddown. Talk about some PO'ed kids then. They don't get the house or the insurance money.

 

[leevena]

Forget for the moment all of these other arguments, which I agree with. If I look at this as an heir, I would advice my parents not to do it.

This is the most "inefficient" use of money I can find. Why would I pay an insurance company a premium just to get my money back? Your rational is that they will get an extra $30k, but not really. There will be a cost for the reverse mortgage ($8k or so) which will further reduce the $30k.

So the sales person commission is more than the heirs effective take home?

No offense, but if you showed-up to my parents house with this idea, you would be wearing a size 12 on your backside.

 

[VolAgent]

Forget for the moment all of these other arguments, which I agree with. If I look at this as an heir, I would advice my parents not to do it.

This is the most "inefficient" use of money I can find. Why would I pay an insurance company a premium just to get my money back? Your rational is that they will get an extra $30k, but not really. There will be a cost for the reverse mortgage ($8k or so) which will further reduce the $30k.

So the sales person commission is more than the heirs effective take home?

No offense, but if you showed-up to my parents house with this idea, you would be wearing a size 12 on your backside.

If you were going to do it, either single premium GUL or SPWL with dividends is the way to go. At least with dividends the death benefit would grow.

That said, you'll be lucky if someone stops this before it ever happens.

 

[LGilmore]

Quick question? Does she really need life insurance at this point or income?

Taking a large chunk, esentially all the value of the mortgage policy and eliminating it from access doesn't make sense unless she has ample income elsewhere.

Why single premium? Couldn't she just withdraw enough premium from the mortgage to pay the bill and still have money available? Why must she give up all the money at once?

 

[Guest]

I give 10 to 1 odds, the OP ignores everyone here and still does it.....

 

[djs]

I have to admit, I know very little about the workings of a reverse mortgage. I know they used to be bad news, I've been told they are better now.

On the surface, this sounds like a really, really bad idea. But, there are probably situations where it might work, I'd have to see a real situation to even come close to believing it might work and worth the hassle for anyone but the reverse mortgage guy and the insurance agent.

What happens in a year or 2 if the parents need the money from the reverse mortgage for life expenses?

Dan

 

[DHK]

If it were me, I would NEVER use 100% of the proceeds of a reverse mortgage for life insurance premiums.

I would want the smallest premium for the maximum death benefit with a permanent policy. Probably a non-lapse GUL.

This is supposed to let you access the remaining reverse mortgage proceeds "guilt free" since you've already provided a means for repayment of the reverse mortgage balance.

If an agent is proposing using 100% of the reverse mortgage for life insurance... RUN!


The idea of using a reverse mortgage and life insurance is so that the permanent death benefit allows you to spend down an asset that was otherwise untouchable. What was once a "last resort retirement income option" can now be a "strategic" retirement income.

 

[ksigmtsu]

IF the family wanted to do it, the kids were involved, and everyone understood exactly what was happening, its not a bad idea.

If you were going to do this, you'd want the heirs involved and signed off on it under separate documentation and to fully disclose exactly what was happening. This WILL complicate the sale, but it is really the only ethical way to do it.

It isn't a bad concept, you can get above market for the house, fully funded life insurance that pays out on death of the principal, and both the residents do not have to move out of the home.