Good Advice Changes
A young married couple in their twenties, just starting out with a family and a mortgage, might find term life insurance appropriate to their needs. With limited finances and a long planning horizon, lower insurance payments coupled with extra mortgage payments meet their immediate goals. For that reason, their financial advisor may well recommend this approach.
In their forties and planning for retirement, different advice might be more appropriate. Whole life may well be the better choice. After all, they don’t want the term life to end at age 70. Whole life can also offer options and riders more appropriate for retirement planning.
With their mortgage nearly paid off, this could also be a good time for an equity line so they can access the wealth trapped in their home for emergencies, repairs or home improvements.
When another twenty years have passed, our couple will be in their sixties. If not already retired, they soon will be. Just as their life insurance needs change over time, so do their home equity needs. The traditional equity line may not be the appropriate retirement planning tool. The payments can escalate and income is either fixed or limited. The risk of having the line canceled or called brings this product into question.
Perhaps this is the time to replace the traditional equity line with a Home Equity Conversion Mortgage (HECM). Insured by the Federal Housing Administration, this equity line can not be canceled or called. In fact, our couple will have access to the money even if they encounter credit problems or their home declines in value. The couple and their heirs will also be protected from owing more than the value of the home at the time of sale.
Best of all, however, may be that credit line growth rate. With a HECM, the available credit grows at the cost of money (independent of the value of the home). The money can be used tax-free. Payments are not required, but are allowed. Interest is deductible in the year it is repaid, not as it accrues.
Life has different stages. What is good advice at one point, isn’t necessarily good advice at another. It’s like the comedian Mort Saul once said about politics, “If you maintain a consistent political stand long enough, you will eventually be tried for treason.”