protect your Business

Protecting Your Business and Financial Future: The Wonderful Benefits of Long-Term Care Insurance for Entrepreneurs

Numerous owners of small to midsize businesses may not be fully informed about the available planning tools and protective strategies designed to secure their operations, particularly during a health crisis requiring long-term care (LTC). When structured effectively, long-term care insurance safeguards business owners’ assets and serves as an appealing employee benefit to draw in and keep top talent. As businesses develop, embracing a comprehensive strategy incorporating Hybrid Long-Term Care (LTC) policies can offer enduring advantages, personally and professionally.

Long-Term Care Insurance: Essential for Business Owners

As a business owner, the last thing on your mind should be the risk of being unable to operate due to a long illness or injury. Long-term care insurance (LTC) is an essential element of financial planning, offering coverage for services generally excluded by health insurance, including in-home care, nursing home stays, and assisted living.

Planning for LTC in your business safeguards your wealth and shows care and foresight for your team and their future. This approach is particularly beneficial if you create an environment where key employees feel secure and valued.

Hybrid Long-Term Care Policies: A Smart Solution for Business Owners

Hybrid long-term care (LTC) policies combine life insurance and long-term care coverage in one product. They offer significant flexibility, tax advantages, and planning benefits. Below is an overview of how they work:

Cash Indemnity Payments: These policies deliver a fixed benefit to the policyholder without needing receipts, offering convenience and flexibility in using the benefits.

Tax-Free Benefits Long-term care benefits are typically non-taxable, adhering to IRS limits. This encompasses the acceleration of death benefits or extended care riders that assist in covering ongoing care costs.

No 1099-R Reporting Unlike conventional life insurance policies that build cash value, these hybrid policies exempt policyholders from 1099-R reporting when surrendering the policy, simplifying tax reporting processes.

Various Elements:

1. Base life insurance
2. LTC rider (which accelerates the death benefit)
3. Extension of LTC benefits
4. Optional inflation protection

These combined features make hybrid LTC policies an attractive and versatile for business owners and their employees.

Making the Most of LTC Insurance: Essential Tax Strategies

LTC insurance can enhance business owners’ employee benefits packages. Depending on your structure (C-Corp, S-Corp, LLC), tax strategies can maximize the advantages of LTC coverage.

C-Corporation owners and employees benefit from complete premium deductibility without age restrictions, although life insurance is considered taxable compensation.

S-Corporations permit the deduction of LTC premiums, which may be subject to age-related limitations. Moreover, the premiums must be classified as reasonable compensation for employees.

Sole proprietors and LLCs can take advantage of above-the-line deductions for their LTC premiums, reducing their taxable income.

Employees may choose between utilizing Health Savings Accounts (HSAs) or itemizing their deductions if their medical expenses surpass 7.5% of their Adjusted Gross Income (AGI).

Providing optional long-term care coverage via after-tax payroll deductions can be an attractive benefit for employees, further strengthening the company’s appeal to top talent.

Factors to Consider for Compliance and Planning

Various regulations must be adhered to when integrating LTC policies into a business framework:

• IRC §7702B: Defines the tax treatment of LTC contracts, ensuring that the benefits are received tax-free if structured correctly.
• IRC §105/106: Clarifies employer deductions and employee tax treatment eligibility.
• HIPAA: Reinforces that benefits provided under qualifying LTC policies will remain tax-free.
• MEC Policies: If premiums are not classified correctly, they could lead to income taxes or penalties upon withdrawal or loans against the policy.           

Information provided by Nationwide

Example Approach: Executive Carve-Out

By setting up a 5-year premium plan with inflation protection, a 55-year-old employee can significantly boost their tax-free long-term care (LTC) benefits by turning 80. Plus, this strategy can help reduce taxable income from life insurance and make the most of business deductions.

Final Considerations: Is LTC Insurance Suitable for You Business?

Integrating LTC insurance into your business strategy brings a wealth of benefits! It provides financial security for business owners and ensures that essential employees receive the continuity of care they deserve. Plus, it’s a fantastic tool for attracting and keeping top talent. By designing policies that include inflation protection and looking into options like carve-outs for employees, you can make sure that the LTC plan remains a valuable resource—personally and for your business.

LTC planning can look different for everyone, but hybrid policies that combine life insurance and long-term care can provide you with flexibility and ease financial worries. By creating a personalized strategy, we can help ensure security and peace of mind for you and your employees.

Disclaimer:  This summary is for informational purposes only and does **not constitute investment, financial, legal, or tax advice**. You should consult your Licensed financial advisor, legal, or tax advisor for guidance specific to your business and personal situation.

Sources:

• Nationwide
• “What Is Hybrid Long-Term Care Insurance?” Investopedia, 25 Mar. 2024, www.investopedia.com/articles/insurance/11/hybrid-long-term-care-insurance.asp.
• “The Benefits of Long-Term Care Insurance for Business Owners.” Forbes, 15 Jan. 2024, www.forbes.com/sites/long-term-care-insurance-benefits-business.