Long-term care insurance is frequently a hard sell, until people are older and often ineligible for coverage. Planners thus may be interested in a multifaceted strategy that answers several needs at once. Jeff Raelston, an LTC specialist at MassMutual, has focused on a way for business-owning clients to use LTC insurance to benefit the owner, his family, the business, and even the estate plan as well, all while protecting health and assets.
One purpose of the passage of the Health Insurance Portability and Accountability Act (HIPAA) in 1996 was to encourage the purchase of LTC insurance by individuals. To do that, the law extended some very serious incentives to employers if they offered coverage to employees. In today's business environment, employers are looking to cut coverage, rather than increase it. But the benefits offered by the purchase of LTC insurance for the owner of a closely held business, and for his family members, amounts to a shelter for income and estate assets as well as a means of providing coverage that's otherwise often overlooked.
The real reason the wealthy purchase LTC insurance through their businesses, says Raelston, is that it is not subject to discrimination requirements. "An employer can provide it for himself or herself and a spouse, and dependents, and exclude every other employee in the company, and still get a 100% tax deduction for doing that as an ordinary and necessary business expense." He goes on to cite additional benefits: When Congress passed HIPAA, he says, because of the tax advantages, insurance companies were required to devise a nonforfeiture rider so that if the insured couldn't pay premiums in the future and the policy lapsed, there would still be some benefits available. There's a loophole in the law, he points out, that allows all the premiums paid to be refunded at death, and not be reduced by any benefits paid. "Most nonforfeiture riders say that if you fail to pay, or if you cancel and the policy lapses, they will either pay the sum total of all premiums in future benefits–or will take any number from 30 to 90 times the daily benefit and pay that out for a lapsed policy. But there is that interpretation in the law that says at death all premiums can be refunded, regardless of any claims paid." MassMutual picked up on that, he says, and is currently the only company offering such a structure in their policy.
