Small Business

Considering Long-term Care

Small Business Solutions

An often-overlooked part of retirement planning for business owners is long-term care. Yet this remains one of the most serious challenges to cash flow in retirement, especially in New Jersey where costs are high and climbing. A good time to look at long-term care plans in terms of leveraging more of a future planned income for care is before retirement. The earlier you plan, the less costly your plan is for life.

There are two types of long-term care plans that provide a monthly income should you need future help with activities of daily living or need help due to a cognitive impairment like dementia. The first is a stand-alone long-term care plan that pays for care for a specified time frame. None of these plans offer a premium that is guaranteed for life. The second type is a combination long-term care plan that combines life insurance or annuities with long-term care. These plans have lifetime premium guarantees and return funds to the family if long-term care services are not required. They also have a choice of unlimited coverage so your stream of income when you need care cannot be outlived.

The life long-term care plans offer several ways to fund the premiums. Besides funding it annually or over 5 years or 10 years, some plans offer a single premium option that can be funded from after tax cash or can be funded with pretax dollars from an individual retirement plan (IRA) or a 401k. Many business-owner clients find this attractive because the plans will require no funding from retirement income.

If the plan is funded by the business, the life long-term care plans also offer favorable tax treatment for the portion of the plan that extends the coverage beyond the base life insurance. In many cases, these plan riders extend coverage for an unlimited amount of time on claim. Deductibility depends on how the business is organized. C Corporations enjoy the most favorable tax treatment. The owners of pass-through entities that buy coverage through the business also have tax advantages for the treatment of premiums.

You do have to be healthy to qualify for long-term care insurance, so it is advisable to put a plan in place before retirement. It is wise to see an adviser who is well versed in long-term care insurance planning and can navigate you through the series of options to customize the plan to your needs and preferences.

Long-term care options plans offer today:

  • Care in your choice of settings: home care, adult day care, assisted living or nursing home
  • A waiting period of 0 to 90 days for home care and facility care
  • A monthly benefit up to $15,000 per month
  • An inflation adjuster for your plan such that benefits grow automatically by 3% or 5%
  • A total benefit period between two years to unlimited years at claim
  • Single person or one plan coverage for couples

About the Author: Steve Shea is the long-term care sales director for One Legacy Financial Group in Parsippany. He has years of experience serving in both long-term care insurance sales and management, regionally and nationally.

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