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Home Business Management Should employers offer long-term care insurance as a fringe benefit?

Should employers offer long-term care insurance as a fringe benefit?

Posted on February 19, 2024 Written by EG Conley, PC Leave a Comment

Most employees today recognize the need to save for retirement and expect to be offered a 401(k) or other qualified plan when hired. But there’s another aspect to everyone’s golden years that’s much less discussed, possibly because it’s unpleasant to think about. That’s the possibility of being stricken by a debilitating medical condition.

Long-term care (LTC) insurance can help mitigate the financial impact of such a crisis. However, many people find the premiums prohibitively expensive, assuming they can qualify for a suitable policy in the first place.

Employers may be able to fill a critical role in this regard. By offering group LTC insurance as a fringe benefit, you can create a relatively simple avenue for employees to acquire coverage. Of course, that doesn’t mean it’s a “no-brainer” for your organization.

Standalone vs. hybrid

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. For help estimating the costs, projecting the financial impact and understanding the tax implications of LTC insurance as a fringe benefit, contact us.

© 2024

Filed Under: Business Management, Human Resources

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