The HECM as a LTCI Alternative

The Home Equity Conversion Mortgage as a Long-Term Care

Insurance Alternative for Financing In-Home Care by Stephen R. Pepe, JD

prolonged in-home care event can devastate an older client’s carefully crafted retirement plan. Past Journal articles, from as recent- ly as September 2016, convey the same message, explaining that— While Medicare covers major medical expenses for those who are 65 and over, the expenses in- volved in a chronic or catastrophic health event can surprise even those who plan well…. The es- timated [health care] expenses the average couple will spend in retirement is $245,000. 1 The traditional, reliable strategy to mitigate the risk of “going broke” in retirement due to a long-term care event is purchasing a long-term care insurance (LTCI) policy. Hopefully, clients will purchase LTCI in time to protect themselves financially in the event of declining health later in life. But there are most likely a number of clients who do not. Maybe they object to or cannot afford the premiums. Perhaps they fail to meet LTCI health underwriting standards because they are among the 90 percent of seniors who have a chronic health con- dition or 80 percent of seniors who have two or more chronic conditions. 2 Others may procrastinate by avoid- ing thinking about and discussing their own mortality. Whatever the reason, only 10 percent of elderly Ameri- cans have LTCI. 3 The rest must find alternatives. Long-term care financing alternatives for affluent clients who enter retirement without LTCI may include self-insuring, or purchasing hybrid life insurance policies A

ABSTRACT The majority of older Americans lack long- term care insurance policies that can finance a long-term care event, which means their retirement savings are exposed to premature and devastating erosion. The $6.1 trillion in home equity owned by households aged 62 and older can serve as a viable in-home care funding source if it is accessed properly. This article explains how the Home Equity Con- version Mortgage (HECM), more commonly known as a reverse mortgage, is an effec- tive tool that enables older homeowners to access home equity to finance in-home care, and why advisors should include HECMs in every long-term care discussion they lead.

Vol. 71, No. 4 | pp. 53-66 This issue of the Journal went to press in June 2017. Copyright © 2017, Society of Financial Service Professionals. All rights reserved.

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JULY 2017 53

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