Will life insurance pay off a reverse mortgage?

Answer 1

Yes. Even better, it can reduce estate taxes. Without a mortgage, your home's value will be part of your total estate and subject to estate taxes. With a mortgage (reverse or otherwise), only the net equity portion will be added to the estate. The life insurance proceeds will be paid to your beneficiaries free of tax, and can then be used to extinguish the reverse mortgage balance. Many people who need the benefits of a reverse mortgage, but are concerned about "stealing" their kids' inheritance are electing this strategy. Let me give you an example of an arrangement I just helped a lady put in place. She obtained $336,000 from her reverse mortgage. We put that into an immediate annuity, which guarantees her a monthly income for life of $2,800. She is using $1,500 of that to pay the premium on a $500,000 life insurance policy, and the remaining $1,300 per month ($15,300/year - tax free) as additional income. When she dies, the $500,000 should be more than enough to repay the reverse mortgage. That's a great outcome - and one more seniors should look at.