Long-Term Care Insurance
Long-term care (LTC) is a range of services and support you may need to meet your personal care needs. At some point in our lives, about 60 percent of us will need assistance with things like getting dressed, driving to appointments, or making meals. Planning is critical, but many people are not sure what is covered by insurance, and people are often misinformed about what is covered by Medicare.
Most long-term care is not medical care, but rather assistance with the basic personal tasks of everyday life, sometimes called Activities of Daily Living (ADLs), such as:
Bathing
Dressing
Using the toilet
Transferring (to or from bed or chair)
Caring for incontinence
Eating
Other common long-term care services and supports are assistance with everyday tasks, sometimes called Instrumental Activities of Daily Living (IADLs) including:
Housework
Managing money
Taking medication
Preparing and cleaning up after meals
Shopping for groceries or clothes
Using the telephone or other communication devices
Caring for pets
Responding to emergency alerts such as fire alarms
Long-Term Care Insurance for Business Owners
Various Options to Consider
Many businesses pay the premiums for a long-term care policy for the business owner, executives, or key employees. This is known as an “Executive Carve-Out” or “Executive Bonus Plan”. Because the business may “discriminate” or decide who a policy is paid for by the company, it makes it possible to provide a long-term care benefit to a select group of employees.
Smaller companies often choose to pay for long term care insurance for the owners and top key employees only. Some businesses also decide to offer long-term care insurance as a group benefit to all of their employees. There are a couple of ways this is typically being done:
The company pays for a full long-term care policy for a certain numbers of employees.
The company pays for a smaller base policy. Each employee may then purchase additional coverage at their own expense. Their payments can be done through payroll deduction and the policies are portable (they can take it with them) if they leave.
The company pays for a set percentage or dollar amount toward a long-term care policy for the employee. The employee is then expected to pay the difference in cost.
The company pays nothing toward a long-term care insurance policy, but makes the group coverage available for all employees to purchase if they would like.
Some group company plans also include spouses and other family members.
Tax Deducibility
Deductions apply for self-employed taxpayers, including LLCs, professional associations, S-corporations, and partnerships. (The owners of 2% or more of these entities can deduct 100% of the eligible premiums paid on their behalf, their spouses, and dependents.)
LTC Insurance premiums paid on behalf of non-owner employees, their spouses, and their dependents are generally fully tax-deductible as a reasonable business expense.
Only certain “qualified” long-term care insurance policy premiums are eligible. The age-indexed chart below shows the maximum amount that is eligible for the deduction (per person).
Attained Age Before Close of 2023 Tax Year:
40 or younger – $480
41-50 – $890
51-60 – $1,790
61-70 – $4,770
71 and older – $5,960
Benefits paid under a qualified long-term care insurance policy are generally excluded from taxable income. However, some indemnity or cash policies (that pay a daily or monthly benefit without regard to actual bills) are subject to a per diem limitation of $390 a day. Unless there are bills to support the higher amount, benefits over that amount are subject to taxation.