Actuarial perspectives to the study of the life care reverse mortgage

Reverse mortgage and long-term care insurance architectures are combined within the same insurance product, called Life Care Reverse Mortgage (henceforth LCRM). LCRM redistributes the borrower’s payouts along the policy life, since it allows the borrower to shift into a new regime characterized by an enhanced benefit, after the inception of not-self-sufficiency. While not changing substantially the insurer’s financial exposure, LCRM allows a guided planning of retirement savings. Actuarial methods are applied, and a formal mathematical structure is devised to build a time-dependent profit/loss function that describes over time the LCRM contract’s value for the lender. In an example of numerical application, framed in the Italian context, ex-ante is monetized, the profit-loss function for a pool of LCRM contracts, showing the performance of this novel hybrid insurance contract against the typical reverse mortgage contract.