Multi-Life Long-Term Care Insurance: Worth Your Consideration

November 07, 2017

Rosalynn Carter once said, “There are four types of people in the world: Those who have been caregivers; those who are currently caregivers; those who will be caregivers; and those who will need caregivers.”

These days, there’s a lot of hype about long-term care insurance and for good reason. More than three quarters of employers now offer paid or unpaid time off for employees to care for aging family members. That’s because the fastest growing segment of the population is those who are 65 years old and older. Forty percent of adults over age 65 already need some type of daily assistance and 70 percent will require daily assistance some time in their lives.  

Employers often end up paying, one way or the other, for employees to provide elder care. By facilitating long-term care insurance benefits, employers can help their employees’ families reduce reliance on family caregivers.

Long-term care insurance, as an employer-provided benefit, has considerable advantages for employees, executives, and business owners. Without it, a married couple may spend $200,000 to $400,000 for long-term care.

A multi-life long-term care insurance plan usually requires as few as three enrolled participants, allowing employees to score a win in three ways:

  1. Premiums are discounted 5 to 20 percent less than a standalone policy
  2. The policy is portable. As long as premiums are paid, the policy continues even after the employee no longer works for the employer 
  3. Underwriting requirements are relaxed
  4. Spouses and partners are often eligible for coverage

Including long-term care insurance in the benefit package doesn’t necessarily mean the employer pays the premium. In fact, premiums can be paid by the employer or the employee.

Four ways to offer long-term care insurance benefits at work:

  • As a standard employee benefit: The employer designates the criteria for a group of employees to be eligible for the benefit. When paid for by the employer, premiums are typically tax deductible. Distributed benefits are generally not taxable to the beneficiary if the policy is a qualified long-term care insurance plan (which almost all policies sold today are).
  • As voluntary benefits: If you prefer not to contribute to employees’ long-term care insurance premiums, consider offering it as a voluntary benefit. Employees self-fund the premiums but may still gain the advantages of relaxed group underwriting and premium discounts.
  • As an executive carve out plan: Business owners (and select employees) hit the trifecta when long-term care insurance is purchased and paid for by the company as an employee benefit. Long-term care insurance does not come under ERISA rules, allowing employers the flexibility to limit the benefit to specific employee groups, like executives and business owners. Executive carve-out takes advantage of combining:

A.   the tax deduction for employee benefits paid for by the employer

B.   discounted premium

C.   relaxed underwriting available to multi-life plans

  • As an executive bonus plan: Executive bonus is a compensation plan for executives or highly compensated employees. Under the rules of IRS section 162, part or all of an earned bonus is paid to the employee for the purpose of paying premium for a long-term care policy. The bonus amount is considered compensation and therefore is tax-deductible to the employer and taxable as income to the employee. To reduce the bite of the additional taxable income, some employers calculate the bonus amount to equal the insurance premium and the additional FICA withholding.

At Heffernan Insurance Brokers, we have expertise in solving problems for small business owners, including employee benefits and long-term care insurance. Together, we will develop a plan to protect you and your employees from the financial drain of long-term care expenses. Contact us at 855-700-1988.