We’ve spent the past few weeks talking about an innovative long-term care insurance product that allows two people with an insurable interest in each other to purchase a joint policy.
Traditionally, joint policies have been available only to couples, with the definition of couple encompassing only those who are married, in a domestic partnership or a common law marriage as recognized by the laws of their state. This innovative product allows any two people with an age difference of no greater than 25 years (and an insurable interest) to take advantage of a joint policy at a discount.
This option is particularly valuable for single women, as they pay significantly higher rates for long term care insurance. We’ve seen how couples consisting of a mother and adult child or adult siblings can benefit. But just as it’s not necessary to be part of a “couple” in a romantic sense, neither is it necessary for joint policyholders to be blood relatives.
Business owners, particularly owners of small, closely held businesses, can enjoy considerable benefits from a joint policy. Moreover, if the policy is owned by a business that is a C corporation and the business pays the premium, then 100% of the long-term care insurance premium is tax deductible.
Let’s consider an example of a family business. The father, aged 68, plans to retire and his 5-year old son will take the reins. The two men opt for $12,000 per month in long-term care benefits and the benefits will extend through both men’s lifetimes. The death benefit on the policy is $300,000. The annual premium for this policy is $17,178, which includes a life insurance premium ($11,445) and the COB Rider premium ($5,738). Since the COB Rider is considered true long-term care insurance, the full $5,738 is deductible to the C-Corp.
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If the father and son opted for two individual policies, the father’s premium would be $24,901 annually, while the son’s premium would be $7276. Together, the two separate policies would cost a total of $32,177. A joint policy saves the business $14,999 annually.
Funding the joint policy through the business can offer substantial tax benefits as, just like with other employee benefits, the payment of LTC premiums on the behalf of employees is a pre-tax expense. Moreover, it isn’t attributed as taxable income to the employee. However, to prevent abuses by business owners who may be employees of their own businesses, there are certain limits on deductibility.
While only a tax professional can give advice about the specific tax benefits to an individual business, a joint long-term care policy is an excellent way for small business owners to fund long-term care expenses at a lower rate while reaping additional benefits.