Financial Options for Cash Strapped Seniors

(Greak Neck, N.Y.) In today's troublesome economy, many seniors are affected by rising prices and are no longer able to make ends meet with their limited fixed incomes. A severe medical condition or emergency household repairs can be fiscally devastating to those who do not have significant savings on hand. Attorney John Virdone explains that "Seniors need creative options to deal with financial problems as they arise. There are a number of alternatives which are available to those seeking aid."

The most obvious solution for seniors who own a home is to refinance and use the equity that they have built up over many years for their immediate needs. However, many seniors would not qualify for a home equity loan because of their limited income. Fortunately, reverse mortgages are available. Anyone who is 62 years old or over can qualify for a reverse mortgage if they own and reside in the same home. A portion of the equity in the home can be turned into cash. Reverse mortgages are different than traditional home equity loans or second mortgages because no repayment is required until the senior no longer uses the home as his or her primary residence. One to four family homes, townhouses, condominium units, and now even cooperative apartments are eligible for reverse mortgages. The amount that can be borrowed depends on Senior's age, the interest rate and the appraised value of the home or the FHA mortgage limits for the area, whichever is less. Generally, the more valuable the home, the older the senior, and the lower the interest rate, the more that can be borrowed.

Another option for seniors is life settlements. Seniors who have life insurance policies may not realize that they can sell them for cash at a fair market value. There are financial institutions and investors that will actually purchase life insurance policies for more than their cash surrender value. These purchasers become the new beneficiaries of the policies when they mature and are responsible for all remaining premiums, if any. A senior interested in conducting a life settlement should first consult with an advisor in order to come to a decision as to whether to sell his or her policy. Second, the Senior and advisor decide whether to work with a broker or to go directly to providers. Next, the Senior and advisor submit the policy and release medical information to several providers for valuation. If the policy meets the providers' criteria for a life settlement, the providers make offers directly or through the broker. Afterwards, the Senior and the advisor review the offers and the Senior accepts the best one. Next, the Senior and advisor complete the chosen provider's closing package, and return essential documents. The provider places the cash payment in escrow and submits change of ownership forms to the insurance carrier. Finally, the paperwork is verified and the funds are transferred to the Senior.

Finally, another option that seniors may have in a difficult economy is commonly called a "pension loan." However, this transaction is not actually a loan, but rather the sale of a portion of the Senior's right to receive his or her future pension payments for an up front lump sum cash payment. There are only a few investors that will conduct these types of transactions; therefore Senior's have less opportunity to negotiate a better price. Nevertheless, for some seniors who do not own a home or have life insurance, this transaction may be the only method where they can obtain a lump sum cash payment for their particular emergency needs.

Whichever method you choose to pursue, it is important to consult with a professional who can help you understand the financial and legal implications of each of these alternatives.

This information was provided by John Virdone, an Associate with Virdone Law Firm, P.C., who specializes in Grandparent Rights, most often working with Grandparent Custody, Grandparent Visitation and Grandparent Adoption issues.

This column was originally posted on (formerly in January, 2009