Businesses generally are illiquid, which can create problems if a business owner requires care in a long-term care facility. LTC is ongoing care in a care facility, nursing home, or at home for those unable to perform a certain number of activities of daily living (ADL) without assistance. ADLs include eating, bathing, dressing, toileting, transferring in and out of bed, continence, or when physical, mental, or cognitive function is impaired or a doctor has ordered specific care.
If the business owner doesn't have a business estate plan that includes long-term care (LTC) insurance or enough money to pay for their care privately, their assets may have to be liquidated. Sometimes, the business's assets must also be liquidated, which can be difficult and take time. Regardless of the business's income or the owner's age, LTC insurance can help pay for care in an LTC facility. Here is why LTC insurance is essential:
- To help ensure the business continues.
- To protect employees, business partners, and heirs.
- To help protect the wealth the business owner has created.
Since LTC costs can add up quickly, it's important to have an LTC plan to help cover expenses. Including LTC insurance as part of your business estate plan may provide more control and choices if the need for LTC arises. Your financial, legal, and tax professionals can help you understand the importance of having LTC insurance and the tax benefits of having the business purchase LTC insurance. Due to the nuances of IRS tax codes and deductions, purchasing LTC insurance outside the business may have limited tax benefits.
LTC insurance as an employer benefit
Many businesses pay for an LTC policy for the business owner, executives, or key employees as part of their executive benefits package. Sometimes, a paid-up LTC policy can be a retirement benefit for the owner or a way to keep a key employee from leaving.
Businesses can offer LTC insurance to all employees as it has become a desired benefit due to recent LTC insurance legislation in multiple states. In these states, employees must purchase LTC insurance through their employer's benefit plans and payroll deductions, buy LTC independently, or pay a higher state tax rate.
Offering LTC insurance as a benefit to employees provides a tax benefit to the business and shows employees you are concerned about their care. There are a couple of ways the business can deduct the cost of an LTC policy for an employee:
- The business pays the total premium for an LTC policy for the employee. The employee may be the business owner or a key employee essential to business operations.
- The business pays for a small base LTC policy for an employee. The employee can then purchase additional LTC coverage at their own expense through payroll deduction, and the LTC policy is portable if they leave the employer.
- The business pays the employee a percentage or dollar amount toward an LTC policy. The employee must then pay the difference through payroll deduction.
Business owners must work with their financial and insurance professionals to find suitable LTC policies from reputable LTC insurance providers. While LTC policies may be similar, their cost can vary greatly. If you have any questions about LTC insurance, your financial professional can help.
This material contains only general information and is not a solicitation to sell any Long-Term Care insurance product, nor is it intended as any financial, legal or tax advice. For information about specific Long-Term Care insurance needs or situations, contact your insurance agent. This article is intended as educational and is not intended to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
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