Advanced Underwriting Consultants

Long Term Care Insurance: The Best Employee Benefit?

Financial professionals working with closely-held business owners are on a constant search for tax leverage with regard to fringe benefits for the owners and their employees.

Pension plans create income tax deductions for the business, and allow employees to exclude contributions from their taxable income. However, the employer must include all eligible employees in the plan, and retirement benefits are generally taxable to the participants.

Nonqualified arrangements that might include life insurance can generally be more selective in terms of participation, but the income tax results are generally not as favorable—especially for the business owners.

Disability income insurance coverage provided by the business can also be selective, and the premium can be deductible. However, the owner-employee with disability income coverage must generally choose between excluding the premium from income or getting a tax-free benefit in the event of a claim.

Could the best employee benefit be long term care insurance?

Long term care insurance coverage (LTCi) has been available for insureds for more than 40 years. LTCi was originally designed to cover the costs associated with confinement in a nursing home. Most policies now provide benefits in situations where an individual needs special care at home or in another specialized non-hospital residence.

Individuals who receive LTCi benefits are generally not sick, but are usually either suffering from a disabling mental impairment, such as dementia, or they are unable to perform the at least two of the basic activities of daily living (ADLs). The ADLs are dressing, bathing, eating, toileting, keeping continent, moving from one place to another and walking.

LTCi was developed to provide money to individuals for situations not covered by traditional health insurance, or by government programs such as Medicare or Medicaid.

Medicare pays only for medically necessary skilled nursing facility or home health care, and then only in limited circumstances for a limited duration. Medicare does not pay for custodial care. Custodial care is the type of service that provides non-professional assistance for everyday activities, such as ADLs.

Medicaid is a government program that does pay for custodial care. However, its benefits are available only to those who have very limited assets and income.

In order to encourage businesses to provide LTCi to employees, the federal government has created a number of tax and administrative incentives. Those closely-held business employers who are looking for a tax-favored, high-value benefit to implement for key employees should consider LTCi.

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