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Reverse mortgage to financial planners (insurance)

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  • 1. How to Use Reverse Mortgages to Help Your Clients with Their Insurance Needs Presented by: Michael Pinter
  • 2. ANYONE 62 or older who owns a home, qualifies for a Reverse Mortgage
    • Seniors will never have to leave their home
    • No income, asset, medical or credit qualification
    • No monthly mortgage payments
    • No repayment of the loan until the last borrower moves out permanently or passes away
    • Equity is tax-free
    • Proceeds paid in lump sum, monthly payments, line of credit or any combination
    • Interest may be tax-deductible upon loan repayment
  • 3. How a Reverse Mortgage Works
    • Amount of proceeds available to the borrower is based on three factors
    • Age of homeowner(s)
    • Appraised value of home
    • Current Interest Rates
    • Loan is repaid at death or move-out and repayment NEVER exceeds value of home
    • Amount repaid is principal, accrued interest, and all service or other applicable fees
  • 4. Common Misconceptions
    • “ The lender takes the house”
    • - Homeowner retains title to the property
    • “ I can be thrown out of my home”
    • - Homeowner can stay in home until maturity event occurs
    • “ I can owe more than my home is worth”
    • - Homeowner can never owe more than the value of the home
    • “ My heirs will be against it”
    • - Experience demonstrates most heirs
    • are in favor of Reverse Mortgages
  • 5. Reverse Mortgage Credit Lines Grow and Compound
    • Borrowers can receive the proceeds as a lump sum, monthly check or as a line of credit
    • Credit lines are, BY FAR, the most popular choice of Reverse Mortgage payment options because the unused portion grows and compounds, giving the clients more available funds every year as long as some portion of the line is unused
    • This is the ONLY product that has this feature
    • FHA HECM’s grow at their interest rate
  • 6.
    • The Reverse Mortgage has primarily been
    • viewed as a last resort to provide funds for
    • equity rich, cash poor seniors
    • HOWEVER…….
    • The “New Generation” Retirees will face:
      • Financing extended lifetimes
      • Minimal or no defined pension plans
      • Rising medical costs
      • Uncertainty of social security trust fund remaining solvent
  • 7. “ NEW GENERATION” Seniors
    • Today’s Senior Citizens are better educated regarding financial concepts such as
    • Asset allocation
    • Use of leverage to maximize wealth and reduce risk
    • They depend heavily on financial professionals to help achieve their objectives
  • 8. As Part of a Financial Plan
    • A Reverse Mortgage may benefit individuals or couples:
    • Who can not afford the risk of long term care expenditures
    • Who are concerned about providing for their heirs
    • Who are concerned about estate tax liabilities
    • Who are insurable, ideally between 62-75
  • 9. Three Examples of Reverse Mortgage Strategies:
    • To increase cash-flow and continue to pay premiums on an existing policy
    • As a funding vehicle for Long Term Care (LTC)/ Life Insurance combo
    • To Fund a Life Insurance trust
  • 10. Scenario One- PROBLEM
    • 80 Year Old Clients want to let their Life Policy ($10,000 in annual premium) lapse because of cash flow issues
    • Client owns $1,100,000 Home and has a $250,000 mortgage balance with a $3,300 monthly payment
  • 11. SOLUTION – Reverse Mortgage
    • Client pays off the existing loan
    • Client receives additional $1,000 a month every month for as long as they live in the home to pay the premiums on their Policy
    • AND
    • Client receives a line of credit for $46,000 that grows and compounds annually
    • If the clients live past the fifteen years and do not use the line of credit until then; they will have over $70,000 available to them.
  • 12. The Results:
    • Clients increase their cash flow by $4,300 a month ($3,300 mortgage payment eliminated plus the $1,000 in new income)
    • They are able to continue paying their premiums and leave their heirs the death benefit proceeds
    • They have a line of credit for emergency situations
  • 13. Benefits to Insurance Agent
    • Continue receiving residual income from premium payments
    • Significantly affect your clients lives for the better, they will love you and send their friends!
    • Possibly free up clients’ cash for additional insurance products
  • 14. Scenario Two - Reverse Mortgage to Fund LTC / Life Combo
    • Situation:
    • 65 year old couple - $300K home, minimal portfolio assets – desires to leave an estate
    • Problem:
    • Statistically one spouse will require a Long Term Care provider
    • Risk is high the estate will be spent down
  • 15. Solution:
    • Establish Reverse Mortgage Credit Line and Fund:
    • 1. “Shared LTC” policy
    • 4 years protection for either spouse
    • Cost = 1/3 rd less than individual policies
    • $4,960 per year
    • 2. “Second to Die” Life Policy from RM Credit Line
    • Amount = $500K death benefit
    • Cost = $5,880 per year
    • Total Annual Credit Line Withdrawals = $10,840
  • 16. Benefits to Client
    • Long Term Care risk substantially reduced
    • Life policy replaces lost equity and maximizes estate potential
      • Flexible Premium Policy
      • Clients only paid premiums 4 years
      • $24K plus Closing Costs & Interest purchased coverage for fifteen years
  • 17. Benefit to Advisor:
    • Commissions to Financial Advisor:
    • 70% of first year LTC premiums
    • 90% of first year Life premiums
    • Total commission = $8,764 plus residuals
  • 18. Scenario Three - Reverse Mortgage to Fund a Life Insurance Trust
    • Situation:
    • 62 & 65 year old couple - $400K home, $800K portfolio
    • Problem:
    • Concerned about future estate tax liabilities for heirs
  • 19. Solution:
    • Fund Life Insurance trust with Reverse Mortgage Credit Line
    • Trust purchases “Second to Die” life policy
    • *Death Benefit = $1,000,000
    • *Annual Premium = $11,760
  • 20. Benefits:
    • Benefit to Borrower:
    • Leverage Home to provide $1 million dollars, estate tax free, to heirs
    • Benefit to Advisor
    • Commission = 90% of first year premium
  • 21. Recap: Value Added by All Strategies
    • Clients –
    • Manage Risk to their financial well being from portfolio volatility, long term care and estate taxes
    • Simultaneously add value to their estate
    • Insurance advisor -
    • Maintain current revenue streams
    • Create opportunities for new revenue
    • Fulfill their fiduciary obligations
    • .