There was an interesting idea proposed in a recent article about reverse mortgages. The article in full is about the fact that the economic market is not great right now and it's not a good idea to take out risky investments. It encourages people entering retirement to get rid of their risky invetsments and take on ones that are less risky. And it mentions the reverse mortgage as a way to get some money now in order to invest in those low-risk things (like putting money into a money market account).
The idea mentioned in the article is that you can take out a new full term life insurance policy in order to cover the financial risks that you take when you take out a reverse mortgage. Essentially the reverse mortgage is a home equity loan that gives you money back that you've already paid into on your home's value. The concern for many borrowers is that the loan has to be repaid when the home is sold. This means that if the borrower passes away and the family can't afford to repay that loan, they can't keep the home.
The idea with the life insurance policy is that you use some of the reverse mortgage money now to take out life insurance. Then when you die, the life insurance goes to the beneficiary. The beneficiary can then use the money to pay for the home so that you haven't taken anything away from your heirs. Interesting idea.
Question of the Day: What is your take on the idea of an insurance solution to this reverse mortgage issue?
