Numerous television reports have been broadcast recently about
financing long-term care for baby boomers and their parents. While
there is not much a CPA can do to help with caregiving issues, there
is an opportunity for you to help your clients get sound advice on
the financial and income tax issues related to long-term care
insurance (LTCI).
Like fire insurance, LTCI cannot be purchased after a catastrophe
has already happened or when pre-existing health conditions make the
insured an extremely high risk. The time to purchase LTCI is when
your health is good enough to pass the underwriting standards of the
insurance companies. These underwriting requirements can vary by
insurance company, so it pays to look at several options. You should
consider only top-quality companies.
In addition to health underwriting differences, there are also
differences in spousal (partner) discounts. While one company will
give a spousal discount only if both spouses purchase a policy,
others will give a discount to the insured spouse, even if the other
spouse cannot or will not purchase the coverage. These discounts can
range from 15 percent to 50 percent and may continue even after the
death of the spouse (insured or not). While the rules vary by
company, a specialist will know which types work best for your
clients. If an agent works with only one company, you are not likely
to see other options.
|
Eligible LTC premium in 2007 |
|
Attained age in tax year |
Limitation on premiums |
|
Age
40 and younger |
$290 |
|
Age
41 - 50 |
$550 |
|
Age
51 - 60 |
$1,110 |
|
Age
61 - 70 |
$2,950 |
|
Age
71 and older |
$3,680 |
| |
|
Another opportunity to assist your clients is to help them identify
opportunities for multi-life discounts and special underwriting when
a group of insured’s applies. These discounts are best when offered
through an employer. While the greatest opportunity is available to
larger groups (i.e., 10 or more), there are multi-life discounts for
groups with as few as three members. Like discounts, underwriting
concessions offered will depend on the size of the group.
An additional factor affecting discounts and underwriting is the
willingness of the employer to pay a portion of the premium for the
group. This can be as small as 5 percent or a flat dollar allowance
for employees and possibly their spouses. Statistics show the
employer contribution enhances the success of a group’s enrollment,
so insurance companies offer larger discounts when employers are
willing to contribute.
Under the Employee Retirement Income Security Act and income tax
rules, LTCI can be an employer paid benefit for a class of
employees, such as officers or employees with many years of service.
This benefit also can be offered to retired executives. While the
rules are too complicated to cover in depth in this article, there
are resources available to explain them to employers.
Many small business owners are missing an opportunity to purchase
LTCI with pretax dollars while they are still working. The portion
of LTCI premium deductible to business owners depends on the type of
legal entity involved. For sole proprietors — greater than 2 percent
of owners of Sub S corporations, partners in an LLP or members of an
LLC — the deduction is limited to the scheduled amount announced
each year by the IRS.
The scheduled deductions increase each year and will increase as an
owner moves into a new age bracket. Although the income tax
deduction is of value, the most important factor in purchasing LTCI
is obtaining the insurance while you are still healthy.
