Give the staff long-term care protection

Are your employees adequately protected in the event they suffer a long-term illness?

Strategy: Provide long-term care insurance (LTCI) as a company fringe benefit. As long as you meet the tax law requirements, the premium payments are deductible by your company and tax-free to your employees. This little-known benefit can become an attractive retention tool.

Here’s the whole story: To qualify for tax-free treatment, the LTCI must provide coverage only for qualified expenses such as the cost of diagnostic, preventive, therapeutic, rehabilitative and other health care services. But the benefits may be provided in the form of per diems or periodic payments unrelated to expenses.

Qualified expenses also include personal care services for a “chronically ill” individual under a plan of care prescribed by a licensed healthcare provider. A chronically ill person is someone who has been certified during the past 12 months as physically unable to perform, by himself or herself, at least two activities of daily living (i.e., eating, toiletry, bathing, dressing, transferring and continence) for at least 90 days; having a similar level of “disability” as defined by the IRS and the Department of Health and Human Services; or requiring substantial supervision as a result of mental impairment.

Note: A tax-free plan is not permitted to provide a cash surrender value or any other amount that can be paid, assigned, borrowed or pledged as collateral.

If a policy pays only the employee’s actual long-term care expenses, there’s no tax limit on the coverage. But there is an inflation-indexed dollar cap on the tax exemption for chronically ill individuals. For 2012, the limit is $310 per day.