another option that can help pay for
your housing needs after retirement
A lot of people are feeling more than a little uneasy about the current economic situation. The experts can spin it any way they like, but the truth is staring us right in the face.
Times are tough and getting tougher. From the looks of it, we won't be digging out of this hole anytime soon.
Foreclosures continue to break records month after month!
Banks are unloading homes for as little as 1/2 as much as they were worth just a few years ago!
Gasoline prices are near all-time highs!
Unemployment is going up!
Inflation is rising faster and faster!
Stocks are in a bear market and going even lower!
Loan interest rates are going up!
Consumer credit is drying up!
Banks are failing!
Home prices continue to sink!
The bad news is everywhere. Chances are, you know someone who is having to make some tough decisions when it comes to money. It might even be you.
While experts debate how long it will take for the economy to find its footing, many seniors who want or need to move into independent living or assisted living are up against the wall when it comes to paying for it. As a result, they've started to look beyond traditional sources of funding for smart alternatives.
Seniors have typically paid for their move into independent living or assisted living by supplementing their income from savings or investments, selling their homes, or both. But, with home prices down, selling now could translate into a substantial loss, even if a buyer can be found (selling a home now takes much longer, often more than a year). And, with stock prices down for who knows how long, selling an investment now could also result in big losses.
This is sobering news for someone who is trying to ride out the bad times and regain that value later. But waiting is not always possible, especially when you need assistance with activities of daily living now, not three years from now.
Reverse mortgages have become more common, but this option works only for a homeowner who receives care in his or her home for the rest of their life. If they have to move into independent living or assisted living at a later point in time, they could be faced with serious problems, including the requirement to pay back their reverse mortgage within one year after moving.
So, with the usual options off the table for now, and probably for the next few years as well, what does someone do if they have to move into independent living or assisted living NOW!
Fortunately, many seniors do have another option. When they were younger, they often purchased life insurance policies as their situations in life changed children were born, income (and lifestyle) increased, a business was started to name just a few. Now that they've retired, however, their life insurance needs have probably changed. In other words, they're still paying for life insurance that they no longer need.
Instead of canceling the insurance just to save a few premium dollars, these "surplus" policies can be used to fund the independent living or assisted living care that's needed now, preserving many of their primary assets as part of the family estate, or until it more convenient to sell.
This option is called a Life Settlement. For many people, it has become a very valuable financial tool.
A Life Settlement is simply this: A policyholder sells his or her life insurance policy to an institutional investor. Typically, these investors pay a lot more policies than their cash "surrender" values. Because most life insurance values are guaranteed and disconnected from the economy, there is no fluctuation, as is the case with real estate and stocks. And, almost every type of life insurance contract can be used for a Life Settlement.
"Life Settlements are not complicated, with transactions often completed in 30 to 60 days," explains Chris Orestis, principal, Life Care Funding Group, a firm that specializes in insurance matters and Life Settlements.
A Life Settlement is an alternative way for seniors to tap into an existing asset to generate liquidity to cover immediate needs. The seller of the life insurance policy gets a lump sum payment. Since it is not a loan, the funds are unrestricted and require no repayment. The gains of a Life Settlement can be tax deductible if used to pay for assisted living or skilled nursing care. (Talk to a qualified tax accountant to learn how deductibility applies to your own situation.)
For people intimidated by the thought of selling their home or liquidating other assets to secure the funds they need, a Life Settlement is a welcome alternative source of funds, according to Orestis.
"With billions of dollars worth of life insurance owned by people older than 65 today, tapping into Life Settlements as an alternative funding option for senior housing and care is gaining serious interest," he said.
Life Care Funding Group can be reached at lifecarefunding.com
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