The Perfect Marriage between C-Corporations and LTC Insurance
Portions of Long Term Care premiums are tax deductible for individuals and businesses based upon age. However, for C-Corporations 100% of LTC premiums are tax deductible. This provides a unique strategy to reduce gross income, and provide a permanent benefit to company employees and/or their family members. Here is a following case study:
Our office recently placed an indemnity (cash benefit) LTC policy with a C-Corporation with the first class problem of being successful. Always looking for legal ways to reduce gross profit, the two principles purchased LTC for themselves, 2 employees (one with a spouse) , and a policy for their mother for a total of 5 contracts. The plan purchased featured a monthly benefit of $12,000 and $1,000,000 of LTC Benefit. It should be noted that this benefit is not considered taxable gross income to the employees. As yearly premiums are not guaranteed, they chose to utilize the 10-pay option so that all contracts would be paid for in 10 years with pre-tax dollars. 10 year premiums spent will be approx. $300,000, for a total permanent benefit of 5 Million. It gets better. The clients chose to include a return of premium option in the contract. This benefit triggers if the member dies. All premiums spent (either full or less claims) will be returned to the individual owners’ beneficiary tax free. The IRS classifies Return of Premium as a non-taxable event. This is one of the few scenarios where a company can implement a benefit, and receive a double dip tax benefit.
While defined as a long term care contract, our office also utilizes this product as a Catastrophic Disability plan. In Connecticut, the largest % increase of Medicaid Long Term Care expense demographic is males in their 20′s. Most people think of LTC as a nursing home benefit, and few think of becoming permanently disabled at any age. Having a plan in place to assist with the devastating results of either scenario is sound fiscal advice.