Reverse Mortgages and Long-Term Care Insurance

Last Updated on Friday, 30 April 2010 12:29 Friday, 30 April 2010 12:27

Articles - Pot Luck

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Have you ever looked at one of those pictures that at first glance appear to be nothing more than a bunch of dots and then suddenly see an image after you stare at it long enough? Personally, I have looked intently at a number of those and have never been able to see anything other than the dots. Although my inability to convert dots into pictures may indicate that I am artistically challenged, I have been able to do something similar with reverse mortgages and long-term care insurance.

Like most people, at first glance it didn’t appear to me that Reverse Mortgages (RMs) and Long-Term Care Insurance (LTCi) had much, if anything, in common. However, even though I have never been able to convert dots into pictures, after years of experience in the financial/insurance industry and untold hours researching RMs, I have come to realize that there are some uncanny similarities between the two.

For the most part, these similarities follow two paths; the most obvious is that they share a primary market in which they have experienced analogous growth pains, including the limited success both suffered through in their early years. The second is the hard, drawn-out fight both have waged in an effort to be accepted, regardless as to why. The fact is that both should be enjoying a much greater and more significant position then they presently do.

The bright side is that the more informed your target market becomes, the greater the level of acceptance your product will enjoy. Of course, educating prospects is one thing, finding them is something else altogether. The often overlooked similarity here is that the majority of LTCi owners and prospects fit the RM prospect profile. Logic dictates that anyone who has been in the LTCi arena for any length of time has a list of seniors who would buy LTCi if they could find the money to pay for one. So the more LTCi salespeople you can bring up to speed on RMs, the greater the likelihood they will share that information with clients and prospects, which in turn greatly increases your imprint in that market place.

Here is the rub: the majority of LTCi salespeople fail to see any connection between these two products, in fact many hold negative opinions about RMs. The problem here is simply a matter of education; in other words, those RM salespeople who are capable of converting dots into clear pictures for LTCi salespeople will find pots of gold.

Consider that over 80% of all seniors surveyed say that long-term care is a great concern, yet after more than twenty years of marketing and sales efforts, less than 7% have ever bought LTCi. The reasons for this are numerous, but far and away the ability to comfortably pay the required premium(s) is the number one reason people give for not buying LTCi. So here’s a question for you: Do you think, as an RM specialist, you might have a solution for the number one problem LTCi salespeople face on a regular basis?

Let’s put all the marketing approaches, sales techniques, and dazzling statistics aside and take a look at the fundamental realities most seniors are faced with prior to deciding whether or not they should use funds from a Reverse Mortgage to pay for Long-Term Care Insurance.

Call me crazy, but I am going to assume that if you’re reading this magazine, you already have an elementary understanding of reverse mortgages. I am also going to assume that you are smart enough to only work with professionals in the LTCi industry who have credible experience combined with an extensive and ongoing educational background in LTCi.

Even though there is no reason for you to be an expert in LTCi, it is essential that you have a rudimentary understanding of the three primary forms these policies can take. Although the benefits provided are for the most part the same, the chassis on which these policies are built on are unreservedly different.
 
The first and most common is what I refer to as Health LTCi. These policies work similar to health insurance. Premiums are based on your age, health, and the coverage you want and are paid on a monthly, quarterly, or annual basis. If and when you ever need long-term care services, benefits are paid in accordance to the schedules and limits as spelled out in the policy.

There are two variables that must be closely examined when we use an RM as the funding vehicle for Health LTCi. One variable is time. For the most part, in order to keep this type of cover in force, the premiums must be paid for the lifetime of the person, or until they start using benefits. In either case, we can’t just pick a number out of the air because neither you, nor the LTCi salesperson ever wants to explain how a client outlived the available RM money needed to pay their premiums. After all, the best LTCi policy in the world is worthless if it lapses before it is needed.

The second part of the problem is even testier, due to the fact that LTCi policies are subject to rate increases. For some reason, there are LTCi salespeople that dance around this issue. My advice to you is that if an LTCi salesperson suggests that the policies they sell are not subject to increases, have them show you that in writing on their company letterhead. If they won’t or can’t, don’t do business with them.

The second type of LTCi is Life-Long-Term care. This is nothing more than a life insurance policy that pays for long-term care services in the form of accelerated death benefits from the face value of the policy. The insurance company pays LTCi benefits from the life insurance policy until such time as the policy is depleted. At that time, additional long-term care benefits will continue to be paid from an extended Long-Term Care Insurance provider. These policies can offer clients benefits from a few years to the lifetime of the insured. There are even products that allow for the coverage of two people on one policy. One of the best features these policies offer is that any part of the death benefit that is not used for Long-Term Care is paid to the beneficiaries at the death of the insured. Another feature that separates this type of coverage for health LTCi is that premiums can never be increased. As such, it is much easier to identify how much money will be needed.
 
The final type of LTCi we will cover in this article is annuity based LTCi; these products work very much like Life-LTCi, with the primary difference being that they don’t offer the leverage advantage that life insurance does. What I mean is that an LTC-Annuities pay benefits based on its value which is made up of principle deposits and interest, Life-LTCi on the other hand, pays benefits from their face value, which is significantly greater than the premiums paid.

Please take into consideration that it takes me three hours to cover an introductory course on these three products; these exceedingly brief descriptions should in no way be considered enough to give you even a rudimentary understanding of these products. To obtain a better understanding, you should either do your own research, which will be time consuming, or turn to those who actually sell these products.

I’m willing to bet that most people working in the RM industry would take umbrage to the notion that all reverse mortgage advisors were the same, likewise you might want to keep in mind that not all LTCi salespeople are equal. The majority of Health-LTCi salespeople do not sell, and in many instances don’t even know about Life and/or Annuity based LTCi. This is not a problem unless, of course, you are under the bizarre notion that the prospects you work with should be aware of all the information and choices available to them before they make a decision on what, for many, will be the largest asset they ever own.

In closing, I would like to take a moment to address all of you that have been so kind as to bring to my attention that I am using the wrong abbreviation. Here’s the skinny: in the long-term care industry the most commonly accepted abbreviation for long-term care insurance is LTCi, not LTCI.