Cash Settlements
 What are reverse mortgages?
What are the different types of reverse mortgages?
What are viatical benefits?
A reverse mortgage is a way of converting the equity of one's home into cash
without having to sell the home. This is beneficial because most seniors do
not want to sell their home, yet many cannot afford the care that might be required
in the event of a catastrophic illness such as Alzheimer's.
In order to qualify for a reverse mortgage, the borrower must be at least 62
years of age and own his home outright, and the property must be a single-family
home. The senior uses the home as collateral to borrow money, which is paid
to him or her by the loan lender (usually a bank, mortgage company or credit
union) either in a lump sum or periodic payments. The total amount of cash derived
from the reverse mortgage cannot be greater than the value of the home. Most
programs have maximum loan amounts, regardless of what the value of the home
is.
Generally, these home equity loans generally do not have to be paid back until
the senior is no longer living in the home. The loan must be repaid if the senior
moves, sells the home or dies.
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What are the different types of reverse mortgages?
When considering a reverse mortgage, make sure to find out how the lender
is insured. There are three types of reverse mortgages:
- Federally insured - Lenders that participate in the Home Equity Conversion
Mortgage (HECM) program are backed by the Federal government, which means
that if they default on your loan, you would continue to get payments.
- Privately insured - These lenders are privately insured and may give
you more money than federal (HECM) lenders. However, if they get into financial
trouble before you receive the full amount of your loan, you may not receive
all of it.
- Uninsured - These loans provide regular payments for a fixed term
(usually 3 to 10 years) and are not federally insured.
If you are considering a federally insured loan, the Housing Counseling Clearinghouse
provides educational counseling and information at 1-888-466-3487.
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Viatical benefits is a term used to denote the conversion of a life insurance
policy into cash before the death of the insured. Some life insurance policies
have a clause called the Accelerated Living Benefit, which entitles the
policyholder to collect the benefits before death. This is a rider that typically
increases premium payments, so if you do not remember choosing this, you probably
do not have it. Contact your insurance provider to find out for sure.
Even if you do not have this benefit, there is another way to cash in a life
insurance policy. There are companies called viatical settlement companies
that purchase life insurance policies from individuals that fit specific criteria
(which vary from company to company). Typically, the viatical company offers
an amount less than the face value of the policy and pays a lump sum amount
or regular installments to the policy-holder.
Keep in mind that by drawing cash from the life insurance policy under these
conditions or selling the policy to a viatical settlement company, the policy-holder's
survivors will no longer receive a payment when the policy-holder dies.
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