Group Long Term Care Insurance Costs, Discounts and Tax Advantages
Group Long Term Care Insurance Review
Group long term care (LTC) insurance programs are an often underutilized employee benefit. However, the advantages to employers and employees can be quite significant and deserve the consideration of corporate management, human resources and employees.
Advantages Of Group Long Term Care Insurance
Tax Deductible Premiums – Premiums paid for Group LTC Insurance by C-Corporations may be fully tax deductible and for other types of corporations only partially deductible. For executives and other key employees, the employer is allowed to pay for the coverage and enjoy the deduction.
Incentivize Important Employees – Employers can use the Group LTC benefits to attract and retain important employees and prospective employees by providing long term care insurance as an employee benefit.
Simplified Medical Underwriting – More flexible health qualification criteria for enrollment is available for employee groups as small as ten. Within this size group, there must be a minimum of 5 approved applications. Because health restrictions with individual long term care insurance underwriting have become significantly more restrictive over the past decade or so, offering protection with simple underwriting can be very attractive to key employees.
Coverage for Family Members – These group long term care insurance benefits are available not only to employees, but also their family members. The lower group LTC insurance premium extended to employees is also offered to their family members.
Sign-up Options for Group LTC Insurance
Executive Carve-out – In this scenario, the employer can elect to pay only a portion of the premium, or even the entire amount of the group LTC insurance costs for their employees.
Voluntary Enrollment – The entire premium is paid by the employee.
Multi-tiered Offering – For companies with different levels of employees, there can various levels of contributions, such as:
- Level A Employees – The entire group long term care insurance premium is paid for the top three executives.
- Level B Employees – For seven key managers, the employer elects to pay a flat monthly premium of $100.
- Level C Employees – For the remaining 13 employees, a monthly contribution of $50 is paid toward the group long term care insurance premium by the employer.
When there is a defined plan design, the entire premium is paid by the employer. In case the employee wants a richer level of LTC benefits, the additional associated premium is paid by the employee. In this scenario, any premium for the added protection would be deducted from the paycheck of the worker.
Group LTC Insurance Premium Discounts
Group long term care insurance normally qualifies for lower cost multi-life premiums. For insured’s who receive an Employer Contribution, they can be eligible for another 5% discount.
In situations with domestic partners or spouses applying for group LTC insurance, they can get up to a 30% discount.
The actual amount of discounts will vary depending upon the insurance carrier and state.
Voluntary Group LTC Insurance Versus Employer-Paid
Here are the three options for an employer in regards to paying premiums for their workers:
- Pay for the entire group long term care insurance premium.
- Only make a contribution for a portion of the premium and the employee pays the balance.
- If the employer doesn’t want to make any contribution toward the group long term care insurance, the employee can pay the entire premium. This would be 100% voluntary.
Group LTC Insurance Tax Incentives
C-Corporations – A 100% tax deduction for group LTC insurance premiums is available to C-Corporations. This applies to both the owner(s) of the corporation and its employees. The tax deduction is defined as a fully justified business expense as follows:
- The employee’s income does not include premiums paid by the C-Corp.
- Retirees and their spouses can also be covered by the group long term care protection.
- As a benefit for key employees, the executive carve-out allows the C-Corp to pay all or part of the employee’s premium.
- Group LTC insurance premiums are not subject to payroll taxes
More than 2% Shareholders and S-Corps Partners – All premiums paid for a partner are defined as individual gross income. Health insurance deductions for self-employed individuals are considered a medical expense.
Self Employed Individuals – An individual who is self-employed, their spouse or other tax dependent has the ability to deduct a tax-qualified group long term care insurance premium as a business or trade expense. The maximum amount each insured person can deduct is defined by the IRS age based amount. This kind of payment is comparable to payments regarding accident and health insurance.
The information contained herein is not intended to be tax or legal advice. LTC Insurance Consultants and its agents and brokers do not provide tax or legal advice.