DON’T wait too long to purchase a policy. With an estimated 50% risk of needing care, age should not be a consideration when purchasing insurance. Forty percent of all long term care expenses are incurred by people ages 18 to 64 years. Additionally, by the time many people decide to purchase long-term care insurance, they no longer qualify for this insurance because of health conditions.
DO purchase a sufficient daily benefit. In Virginia, a semi-private room currently averages $170 per day. A policy with inadequate benefits will require the use of personal funds to fill in the gaps or trying to qualify for public benefits in the future.
DO understand the “waiver of premium” feature. Typically, once the insured is receiving benefits from the insurance company, the premiums on the policy are “waived.” If recovery is made and the insured is no longer eligible for benefits, then the premiums will resume.
DO consider policies with an inflation rider. The cost of long-term care insurance continues to increase faster than inflation. With the most recent studies showing the cost of care rising 7% annually, insurance companies are offering policies with riders that provide inflation protection. Whether to use simple or compounded inflation protection can usually be determined based on the age of the purchaser.
DO consider purchasing a “paid up” policy. Because a policy’s premiums may rise, consider purchasing a “paid up” policy that no longer requires a premium once the insured reaches a certain age or after a given number of years.
DON’T forget to notify your tax preparer. All, or a portion, of your premium may be tax deductible. For an individual who itemizes tax deductions, medical expenses are deductible if they exceed 7.5% of the individual’s adjusted gross income. Currently, the portion of the long-term care insurance premium that is deductible is determined by the age of the insured:
Age Amount Deductible
40 and under $320
41 to 50 $600
51 to 60 $1,190
61 to 70 $3,180
70 and over $3,980
DO consider, if you are a business owner, using your company’s checkbook to pay the premiums. Greater tax benefits are given to business owners. The premiums paid by C-corporations for their employees or an employee’s spouse or dependents, are fully deductible as a business expense. The tax treatment for owners of S-corporations is favorable but slightly more complex than that of C-corporations. The premium is reported as additional compensation to the shareholder, but not subject to FICA or Medicare. The shareholder is then able to deduct the premium to arrive at the shareholder’s adjusted gross income. The S-corporation is able to take a deduction as a compensation expense. This benefit is not subject to the nondiscrimination rules, even though the premiums are deductible.
DON’T worry about unused policy benefits. One of the biggest concerns about buying coverage is the thought of dying and never needing the policy benefits. With some companies, individuals can purchase a “return of premium” rider which, upon death of the insured prior to the age of 65 years, pays back premiums on most policies after ten years of policy ownership, less any benefits paid.
Andrew H. Hook
Oast & Hook