The HECM as a LTCI Alternative

The Home Equity Conversion Mortgage as a Long-Term Care Insurance Alternative for Financing In-Home Care Stephen R. Pepe

requires amechanism to release that equity and transform it into spendable funds. One suchmechanism that is both efficient at unlocking home equity and within the finan- cial reach of millions of older homeowners is the Federal Housing Administration (FHA)-insured Home Equity Conversion Mortgage (HECM). 9 Commonly known as a reverse mortgage, a HECM enables older homeowners to convert a portion of their home equity into income-tax- free funds to pay for in-home care, medical equipment, and home accessibility modifications necessary to en- dure an extended period of declining health in their own homes, all while insulating their other assets from signif- icant depletion. 10 By using the strategies explained in this article, a HECM can outperform many LTCI polices in terms of the amount of monies available for one’s care, the versatility of those funds, startup costs, and ongoing out-of-pocket costs when an owner-occupied home is an older client’s long-term care setting of choice. Cost of In-Home Care Genworth’s 2016 Cost of Care Survey shows that the national median hourly rate for both “Homemak- er Services” and “Home Health Aid Services” is $20 per hour. 11 The national median monthly cost for both of these services combined is $7,674. Singling out five states in five regions of the country, Table 1 provides their monthly median care costs. These costs are limited to the hourly rate for caregiv- ers that visit clients’ homes. They do not include assistive technologies or home modifications. Fewer than 4 per- cent of single-family homes contain all three of what the Joint Center for Housing Studies of Harvard University calls “three of the most critical accessibility features” for older homeowners. 12 Those features include single-floor living, extra-wide hallways and doors, and zero-step en- trances. Therefore, the majority of older homeowners trying to age in place will face disability-related home renovation costs in addition to caregiver costs. HECM Primer This general overview of HECM features pre- cedes the discussion about the different strategies that

and annuities that have long-term care riders. The lat- ter come with substantial initial out-of-pocket costs but can provide meaningful long-term care benefits similar to traditional LTCI products. David A. Gresham, in his Journal article from July 2016, covered these asset-based products in great detail. 4 Clients who lack both LTCI and the resources to self-insure or purchase hybrid insurance and annuity products must rely on their families and pro- grams like Medicare, Medicaid, and Veterans Adminis- tration Aid and Attendance Benefits. Seniors’ desires to age in their own homes sur- face in conversations during client appointments as well as in recent written studies. For instance, in its May 2016 published report, the Bipartisan Policy Center acknowledged that a “substantial majority of seniors” wish to age in place in their own homes. 5 Furthermore, 85 percent of retirees surveyed by Mer- rill Lynch preferred to receive long-term care in their own homes as opposed to assisted living facilities, nursing homes, or family members’ homes. 6 As of 2016, the nationwide median nonhousing net worth of homeowners aged 65 and older was $103,180. 7 Therefore, advisors who examine the totality of their clients’ assets when searching for viable in-home, long- term care financing sources—whether as part of an annual plan review or in preparation of an imminent, foreseeable need—cannot ignore home equity. Homeowners aged 62 and older, who combined own $6.1 trillion of this nation’s home equity, can tap into their home equity to finance their in-home care needs. 8 Because home equity is not a liquid asset, a homeowner

TABLE 1 Monthly Median Care Costs, Homemaker and Home Health Aid Services



Median Cost

Northeast Southeast Midwest Northwest Southwest


$9,505 $7,293 $7,674 $9,472 $7,811

Florida Kansas




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