My impression was that you could get a lifetime guarantee albeit at a lousy rate and the bank would be on the hook for losses. Clearly that is not the case but what is?
The reverse mortgage my MIL has is working OK. A percentage of the value of her condo is made available to her as needed. She contacts the folks holding the reverse mortgage and they place funds in a MM account and note on the ledger how much she has to go. So far in the 6 - 7 years she's had the reverse mortgage, she's used it for some unplanned dental work and a new HVAC system for the condo.
Where folks get in trouble is that they eventually run out of money available for the reverse mortgage but since they still need to pay taxes and maintenance on the house, they still go broke. If taxes are delinquent, then the mortgage company needs to declare default and take over.
The good news for MIL is that she took out the reverse mortgage before the housing crunch. The amount she can currently remove from her equity is greater than the current market price of the condo. So the mortgage company took on some of the market risk.
We allowed her to do the reverse mortgage because her kids, including my DW, couldn't decide how to help her financially in a fair way between them. No one wanted to step up and buy the condo and lease it back to her or whatever scheme. And she really likes it there so we had zero interest in moving her to an apartment. (The four siblings can easily afford to keep her in the condo, they just couldn't decide how........) So the reverse mortgage allows her to stay in the condo without formal monetary help from her kids.
She's 88 and has some health issues so this might not go on too many more years. If the time comes where she's exhausted the equity and her SS check won't cover the taxes, monthly condo fees and any maintenance she's responsible for (probably in 7 - 8 more years), and she's still living there, we'll just figure out how to split the cost up and start helping her then.
This isn't the cheapest way to get equity out of the condo. But it kept the kids (including my DW) at arm's length for the time being and peace in the family. MIL feels independent, loves where she lives and is delighted to be staying. It's nice that the mortgage company is eating the market risk in this particular case.
We know that if someone had stepped up and, with the proper legal help, bought the condo from her and leased it back, we probably could have save some bux. But no one wanted to and this is working.
As far as the issue that she really can't afford the place if she needs to spend the equity, hey, she likes it there a lot (indoor parking, quiet, pleasant grounds, near one of her sons, etc.) and if she lives long enough to have exhausted the equity and can't pay the taxes and condo fees, we'll do it, no problem.