Home equity and an old life insurance policy are the two assets Houston families reach for first. Here is what a reverse mortgage and a life settlement actually do, who regulates them, and the timing mistakes that cost families the most.
Quick answer: A reverse mortgage (the federally insured kind is called a HECM) turns home equity into cash or a credit line without a monthly mortgage payment, but the loan generally comes due when the last borrower dies, sells, or no longer lives in the home as a primary residence. A life settlement sells a life insurance policy to a third party for more than its cash surrender value but less than its death benefit. Either one can help pay for care, and either one can backfire if the timing, the spouse, or Medicaid eligibility is overlooked. Talk to a Texas elder law attorney before signing.
Why Houston families end up looking at these two options
Most families come to us after the numbers stop working. Assisted living in Greater Houston is commonly quoted in the range of $3,200–$7,800 a month depending on the community, the apartment, and the level of care, and memory care and nursing care typically cost more. A parent's monthly income often covers only part of that. The two assets that sit untouched are usually the house and an old life insurance policy, and that is why reverse mortgages and life settlements keep coming up in conversations around the kitchen table.
Both products are legitimate, regulated, and sometimes exactly right. Both are also sold by people paid on commission, so it helps to know the tradeoffs before anyone calls you back. This guide is general information, not legal or financial advice, and it deliberately avoids quoting rates or payout percentages because those change constantly and depend on the individual.
Option one: the reverse mortgage
How a HECM works
The most common reverse mortgage is the Home Equity Conversion Mortgage, or HECM, which is insured by the Federal Housing Administration. The homeowner must be at least 62, must live in the home as a primary residence, and must complete counseling with a HUD-approved counselor before applying. The borrower keeps the title. Instead of paying the lender each month, the borrower receives a lump sum, monthly payments, a line of credit, or a combination, and interest and fees are added to the loan balance over time. The Congressional Research Service overview of HECMs is a readable neutral summary of how the program is structured.
The borrower is still responsible for property taxes, homeowners insurance, and keeping the home in reasonable repair. In Houston, where flood insurance and rising property tax bills are real budget items, falling behind on those obligations is one of the ways a reverse mortgage can go into default.
The part that matters most for care: moving out
This is the point families most often miss. A HECM is designed for someone who intends to stay in the house. According to the Consumer Financial Protection Bureau, the loan generally becomes due when the last borrower dies, sells the home, or stops living there as a principal residence, and a stay away from home for health reasons, such as in a nursing facility or assisted living, can trigger repayment once it stretches past 12 consecutive months. Read the CFPB's own explanations of when a reverse mortgage must be repaid and what happens if you move into a nursing home or assisted living.
In plain terms, a reverse mortgage tends to work best for paying for in-home care while a parent remains at home. It is a much weaker fit if a move to assisted living or memory care is likely within a year or two, because the loan comes due, the house is typically sold, and the closing costs you paid up front bought you a short runway.
What a reverse mortgage costs
Expect several layers of cost: an origination fee, standard closing costs, an upfront FHA mortgage insurance premium, an ongoing annual mortgage insurance premium, servicing charges, and interest. We are not quoting percentages here because they change and vary by lender, but you are entitled to a written breakdown from any lender, and you should ask for one from at least two. Because interest is added to the balance rather than paid monthly, the amount owed grows, and the equity left for heirs shrinks.
Questions to ask before a parent signs
- Is there a spouse who is not on the loan? Federal rules offer certain protections to an eligible non-borrowing spouse, but they come with conditions. Ask the lender to explain in writing what happens if the borrowing spouse enters a nursing home or dies first.
- How likely is a move to assisted living, memory care, or a nursing facility within the next two years?
- Are property taxes, homeowners insurance, and flood insurance current and affordable for the long term?
- Who is the Texas elder law attorney or HUD counselor reviewing this, and are they independent of the lender?
- How will the proceeds affect Medicaid or other benefits? Cash held in a bank account can be counted as a resource, so ask before the money lands.
Texas homestead law adds another layer. Texas protects the homestead strongly, and a reverse mortgage on a homestead is allowed only under the conditions set out in the Texas Constitution. Make sure the lender and the closing attorney are working under the current Texas rules, and have your own attorney read the documents. Our separate guide to Medicaid spend-down and the homestead exemption explains how the house is treated if Medicaid becomes part of the picture.
Option two: the life settlement
What it is
A life settlement is the sale of an existing life insurance policy, most often a universal or whole life policy the owner no longer needs or can no longer afford, to a company that will keep paying the premiums and collect the death benefit later. The payment is usually more than the policy's cash surrender value and less than the death benefit. A related product, the viatical settlement, applies when the insured person is terminally or chronically ill. Term policies with no conversion option rarely have meaningful value to a buyer, and a policy's value depends heavily on the insured's age, health, and the policy's terms.
How Texas regulates it
Life settlements in Texas are regulated by the Texas Department of Insurance. The rules are in 28 Texas Administrative Code, Subchapter R, and providers and brokers are expected to be licensed. TDI also publishes a consumer disclosure form, Important Information You Should Know Before Entering Into a Life Settlement. Ask the broker for it, read all of it, and confirm the license of whoever you are dealing with on TDI's website before sharing any policy information.
Tradeoffs worth weighing
- Benefits to the family disappear. Once the policy is sold, the death benefit that might have covered funeral costs or been left to a spouse or child is gone.
- Taxes may apply. Part of the proceeds can be taxable. Ask a CPA, not the broker, how it would apply to your parent.
- Medicaid and benefits. A lump sum of cash can be a countable resource for means-tested programs such as Medicaid, so the sale can change eligibility or the timing of an application. Texas has addressed life settlements and Medicaid planning in its law, so an elder law attorney should map out the sequence before anything is sold.
- Broker compensation. Brokers and providers are typically paid from the transaction, which can reduce what the policy owner receives. Ask for every offer and every fee in writing.
- Privacy. The process requires sharing medical and financial records with several parties.
Before selling, also ask the insurer whether the policy offers an accelerated benefit or long-term care rider, or whether it can be converted to pay for care. Those options sometimes beat a sale, and they cost nothing to ask about.
Comparing the two side by side
A reverse mortgage tends to fit a parent who is staying home, owns the house outright or nearly so, has a spouse who can keep living there, and needs help covering in-home care. A life settlement tends to fit someone who owns a policy they no longer want, whose family does not depend on the death benefit, and who needs a lump sum to bridge a move into a community. Neither fits well when Medicaid is likely within a short time, since both change the asset picture, and neither replaces a clear look at the other ways families pay for care, including VA benefits for eligible veterans and long-term care insurance if there is any. Our paying for senior care overview lays those out.
Red flags in either transaction
- A salesperson pressuring you to decide the same week, or showing up uninvited.
- A lender or broker who steers you away from independent counseling or an attorney.
- Promises that a product will "never" affect Medicaid or other benefits, or that there are no fees.
- Requests to sign blank forms, or to add an adult child's name to a deed or policy without legal advice.
- An unlicensed provider. Always verify licenses with the state, and verify a lender through HUD's counseling referral before applying.
A sensible order of operations
Start by writing down what care is likely to cost, and for how long, for the specific parent. Then ask whether the home or the policy is actually needed to cover the gap, or whether income, benefits, or a different level of care would close it. If you do pursue either option, get the lender's or broker's offer in writing, have a Texas elder law attorney read it, and have a tax professional review the effect on your parent. Only then decide. A parent with capacity should be part of every conversation; if capacity is declining, review our guide to guardianship vs power of attorney in Texas first, because who is legally allowed to sign matters.
We do not sell reverse mortgages or life settlements and we are not paid by anyone who does. Our role is to help you understand what care your parent needs, what it will cost across Harris, Fort Bend, Montgomery, Brazoria, Galveston, Liberty, Waller and Chambers counties, and which communities are a real fit. Call Sandra and the team free at (346) 385-3815 and we will walk through the numbers with you before you commit to anything.
Last updated October 1, 2026. This guide is general information for Greater Houston families, not medical, legal, or financial advice.
