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Long-Term Care Insurance: A Valuable Employer Benefit?

Most employees understand the importance of saving money for when they stop working, and they usually expect to have a 401(k) offered when they start a job. In addition, there’s another important thing about aging that is much less discussed. It’s the possibility of getting sick, injured, and the need for expensive long-term care (LTC).

Long-term care insurance can help pay for this kind of care, but many people think it costs too much, and may not be able to get a good policy.

Employers could help with this by offering long-term care insurance as an employee benefit. This would make it easier for workers to get coverage. However, it’s not necessarily a perfect solution for every organization.

Standalone Vs. Hybrid Long-Term Care Insurance

Group LTC insurance tends to take one of two forms. The first is a traditional standalone policy. The second is a hybrid policy that combines a long-term care benefit with group term life insurance and a death benefit. Although there are some differences in the details, both types provide benefits when a policyholder:

  • Requires assistance with at least two of six activities of daily living (bathing, dressing, eating, transferring, toileting, and continence), or
  • Has a cognitive impairment that requires supervision.

 
With either type of policy, care may be provided in the policyholder’s home, in an assisted living or nursing facility, or in a comparable setting. Generally, benefits received for qualified LTC expenses are tax-free to policyholders while employers can deduct premium payments as a business expense.

But there’s a key difference between the two plans. The value of a standalone policy vanishes upon the policyholder’s death. On the other hand, hybrid policies with a life insurance component build cash value and may provide early access to the death benefit. If long-term care is never needed, the death benefit is paid out to the policy’s designated beneficiaries. These policies may offer other options as well, including riders and flexible payment plans.

Employee Appeal

LTC insurance as a fringe benefit can appeal to employees for several reasons, including:

Competitive premiums. As mentioned, people who shop for LTC coverage on their own often find the premiums cost-prohibitive. But group plans — which spread and, therefore, reduce insurance risk — typically offer discounted premiums. Some employees may consider them more affordable.

Favorable underwriting. Insurers typically streamline underwriting for group plans. Individuals who try to obtain an LTC policy must undergo a health evaluation, and many are deemed uninsurable as a result. Group plan requirements are generally less stringent, and insurers may offer open enrollment to all members of the employee group.

Convenience. Simply put, it’s easier to buy LTC insurance through an employer’s plan than it is to engage with an insurer individually. As the employer, you do the “legwork” of vetting providers and negotiating premiums and policy terms. And because those premiums are deducted from employees’ paychecks, participants don’t need to worry about making (or missing) payments.

Research Necessary

The primary reason to consider LTC insurance as a fringe benefit is to attract quality job candidates and retain employees who will value the coverage. Regarding the latter point in particular, organizations with a stable workforce of relatively older workers are more likely to find success with this benefit.

To get a better idea of whether it’s right for you, analyze your workforce demographics, conduct an employee benefits survey, and discuss the concept with your leadership team and advisors. Contact us for help estimating the costs, projecting the financial impact, and understanding the tax implications of LTC insurance as a fringe benefit.

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