Health Matters: Considering Long-Term Care Insurance
Considering Long-Term Care Insurance Planning for long term care has many benefits, including tax advantages for both businesses and employees.
By Cheryl Smith, MA
With today’s aging baby boomers making up nearly half the workforce, small business owners have some very compelling reasons to consider providing long-term care insurance for themselves, their key employees or even their entire workforce. Statistics show that one out of every two elderly Americans will need long-term care, but unfortunately most baby boomers have done little in terms of planning for the care they likely will need in the future. And although long-term care insurance is not high on most people’s list of priorities, it probably should be. Long-term care insurance is a supplemental policy that covers expenses not covered by Medicare or other private insurance plans. These policies cover costs that arise when an individual needs on-going care, such as home care, hospice care or nursing home care. Financial Benefits for Small Businesses Under current tax laws, business owners have the option to offer long-term care insurance to some or all employees. Companies can offer it either as an executive benefit or as an employee benefit. Most companies can purchase a policy for just executives and key employees or, depending on the number of employees, they can offer the insurance as a voluntary employee benefit. In such an arrangement, the employee covers the cost tax-free, but could receive a discount ranging from 5 to 15 percent, depending on the insurance company. Providing long term care insurance to employees—either on an employer-paid or employee-paid basis—can provide tax advantages and other financial benefits to business owners. According to The Guardian Life Insurance Company of America, some of the benefits to small business owners include:
Businesses are able to deduct the full premium paid for long-term care insurance coverage on behalf of its employees and their spouses or dependents. This includes shareholder-employees of “C” corporations.
Owners of LLCs, sole proprietorships, partnerships or those with more than 2 percent ownership of an “S” corporation also enjoy significant tax benefits on company-paid premiums for their own policies.
Many long-term care insurance carriers offer a discounted premium rate for qualified businesses and associations.
Some insurance carriers even offer premium payment options that enable business owners to have their premiums fully paid by the time they retire.
Employee Tax Advantages At the same time, employees can receive certain tax advantages by having long-term care insurance in place, whether their employer fully funds the coverage, pays part of the premiums or simply makes it available to them.
Employees generally pay no income tax on employer contributions.
Employee contributions can be made through payroll deduction or billed directly.
Benefits are generally tax-free, even for employer-paid policies.
In some policies, spouses and qualified family members of employees are also eligible for coverage. Some of these policies offer multi-life discounts, which can add up to a total savings of 45 percent in premium. Other qualified family members can include parents, in-laws, grandparents and adult children.
Things to Consider For both small and large businesses, long-term care insurance is the fastest growing voluntary group benefit. Before selecting a policy, however, employers should consider a number of factors. The most important factor is to buy a policy from a financially sound insurance company. Individual policy costs will depend on the total coverage benefits, whether you have inflation protection and the waiting or elimination period. The age of the policyholder will also influence costs. People should start thinking about purchasing a long-term care insurance policy when they reach their late 50s. However, long-term care insurance does not make sense for everyone. Employees first need to consider if signing up for a policy makes sense given their current situation. If they have a large amount in assets, they’ll probably want to purchase a policy to protect those assets. However, for those who can’t afford the premiums without changing their current lifestyle, it might not make the most sense.
Give Employees the Gift of Security Retirement planning is often the area most neglected by small business owners. But those who recognize the rewards of offering added benefits such as long-term care insurance will be rewarded with top-notch, productive employees. Even for those who decide long-term care insurance doesn’t work for their business, can show employees that they are valued by providing information and resources for employees about coverage options. The result is higher employee morale and a more dedicated team.
Cheryl Smith is a geriatric care manager and the president of Kansas City Home Care Inc. For more information visit www.kchomecare.com or you can reach Cheryl at (913) 341-4800
