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Offer long-term care insurance to staff

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Are you and your employees adequately protected in the event of a long-term illness?

Strategy: Provide long-term care (LTC) insurance as a company-paid fringe benefit for employees (including yourself). This offers some protection to employees who may be forced into an extended nursing home stay.

As long as you meet the tax-law rules, your company can deduct the long-term care policy premiums and the coverage is tax free to the employees. In effect, it’s like an extension of your health insurance plan.

To qualify for tax-free treatment, the LTC policy must provide coverage only for qualified expenses such as the cost of diagnostic, preventative, therapeutic, rehabilitative and other health care services. However, the benefits may be provided in the form of straight per diems or periodic payments unrelated to expenses.

The list of qualified expenses also includes personal care services for “chronically ill” people under a physician-prescribed plan.

For this purpose, a chronically ill person is someone certified during the past 12 months as meeting one of these requirements:

  • Physically unable to perform, by himself or herself, at least two activities of daily living (e.g., eating, bathing, dressing, trans ferring and continence) for at least 900 days.
  • Having a similar level of “disability” as de­­­fined by the IRS and the Department of  Health and Human Services (HHS).
  • Requiring substantial supervision as a result of mental impairment.

Note that you can’t offer long-term care insurance to employees through a cafeteria plan or a flexible spending account (FSA) arrangement.

Tip: Choose your policy carefully. An insurer may set strict health qualifications that would exclude some of the workers you want to cover.

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