Monday, October 6, 2014

New Products Help with Eldercare Financial Planning

As the ‘Age Wave’ Approaches, Private Business Steps in with Eldercare Financial Products

With Baby Boomers nearing retirement age and with many of their parents already needing aging care, private businesses are creating a series of new financial products to help families pay for care and aging related products. Over the past ten years, the market has seen the emergence of a variety of products serving the aging market that can be grouped into three categories. First, there are products that help families to convert assets to pay for care. Second are the loans specifically designed to meet the needs of families facing a paying-for-care challenge and the third is the financial products that help families to meet Medicaid's ever-changing, eligibility requirements.

Asset Conversions

Many families have significant financial resources tied up as assets that, in this non-liquid state, cannot be used to pay for care. Usually, the asset is their home. Reverse mortgages have been available since the 1960s. However, it was not until the late 80s when the government stepped in with regulation and consumer protections, that reverse mortgages gained in popularity. Today, there are what can best be described as private reverse mortgages that allow homeowners to receive a portion of their homes' value in cash without the same upfront costs as a reverse mortgage.

EquityKey and Rex Agreements are two examples that allow homeowners to receive cash immediately by selling a percentage of their home's future appreciation.  This clever idea enables participants to both receive cash, while continuing to hold 100% of their home's existing value. These products are best suited for persons who wish to age in their homes and might need to make home modifications to do so. Learn more from the EquityKey article and the Rex Agreements article on our website.

NestCare is another option, while still in development, this product is a more consumer friendly version of a reverse mortgage except the home is actually being sold in one month, one percent increments.  Even after 100 months, or over 8 years—a complete sale—the homeowner maintains the right to live in their home indefinitely.

Like homes, life insurance is another "asset" that can now be used for pay for care while the policyholder is still alive.  Life settlements involve selling the death benefit of a life insurance policy for a portion of the benefit amount.  This concept, which is also referred to as viatical settlements, began in the 1980s. However, the newer financial products associated with life settlements are designed specifically to pay for care and do so in a manner that allows the policyholder to become eligible for Medicaid should the funds from their life insurance settlement become exhausted. These Medicaid life settlements are being pioneered by an organization called LifeCare Funding. The concept is looked on so favorably that the state of Texas passed a law that requires Medicaid applicants with life insurance to be informed of the option. Several other states are expected to follow suit with their own versions of the law. Learn more about converting a life insurance policy to help pay for long term care on our website.

Eldercare Loans

Loans intended specifically for eldercare became a reality several years ago.  However, the best model for them is still being fashioned given the challenges associated with lending money to someone in failing health. The current version of eldercare loans are made on a short term basis when the borrower is expecting an alternative source of funding to become available.  It is quite common for the need for eldercare to come unexpectedly and families may wish to borrow money for assisted living, for example, while waiting for a home to sell.  Another very common scenario is when one is waiting for veterans' pension benefits.  Elderly veterans and their spouses can receive several thousand dollars per month for care but the application process can take 6 - 18 months.  Once approved, the benefits are retroactive to the date of application, resulting in a lump sum payment. Eldercare loans are given knowing a lump sum payment is forthcoming and the loan can be repaid from that lump sum. Lear more about eldercare loans on our website.

Annuities and Trusts

The third category of financial product specifically intended to help families afford eldercare involves annuities and trusts that enable families to qualify for Medicaid or veteran's pensions.  Both Medicaid and veterans' pensions provide significant financial assistance for care but both programs have strict financial eligibility requirements that take into consideration both the applicant's (and their spouse's) monthly income and their financial assets.  Pooled income trusts, a financial product sometimes managed by non-profit organizations, provide a way to lower one's monthly income in order to meet Medicaid or the VA monthly income requirements. Irrevocable funeral trusts enable a way to pre-pay for one's funeral expenses while at the same time lowering one's overall assets to meet Medicaid and VA asset limits. Medicaid and VA planning annuities achieve this same purpose; they convert assets that would otherwise disqualify the applicant into income that can be used for ongoing care. Often a Medicaid planner can best advise families on how to best make use of these products. Learn more about how a Medicaid Planning works in this article on our site.

Given the already high and ever increasing cost of eldercare and the massive number of Americans expected to require care over the next 20 years, we expect to see the amount of private financial products addressing this market to continue to grow.


Have we missed any product you know of? Do you have experience with any of these products or services? Please share your comment on our Facebook page.