Life Care Reverse Mortgages: looking towards a new mixed contract

In recent times the aging population and the increasing poverty among the elderly have become widespread topics, exacerbated by economic challenges in funding pensions through public pension systems due to a decreasing ratio of employed individuals to pensioners. The aging population increases the risk of dependency, while rising poverty means many are unable to afford their own care. In response to this pressing issue, we propose a mixed con- tract called “Life Care Reverse Mortgages” which combines Reverse Mortgage contract with Long-Term Care (LTC) insurance, offering support to those in need of care who are “house rich and cash poor”. The concept of the Life Care Reverse Mortgage draws inspiration from the existing Life Care Annuity contract found in literature, which combines a life annuity with a LTC insurance contract and is designed, instead, for those who are experiencing “poor health but would not go immediately into Long Term Care claim”. In the Life Care Reverse Mortgage scheme, the periodic amount (the installment) received under Reverse Mortgage conditions is augmented by an additional stream of payments if the individual becomes dependent and requires long-term care. The home equity value serves as the basis for full coverage, enabling the elderly to receive financial assistance to cover any LTC expenses. From this starting point, we aim to assess the gender longevity gap effects using Italian data and then, using the same data, to compute the fair value of this contract.