Marketing Key-Employee LTC Insurance Should Work In The Corporate Market

By Jeff Sadler

Back in the 1970s, singer-songwriter Harry Chapin wrote a song with the lyrics “All My Lifes A Circle.” This is never truer than it is in the insurance industry. What you learn at one time often comes back to help you in surprising ways in the future.

So it is with disability income insurance and long term care insurance in the corporate market.

Regarding DI, there has always been a good living to be made by helping employers establish and fund a sick pay plan for employees. Employers who do not do this funding risk adverse tax consequences should an enterprising Internal Revenue Service auditor wonder why the boss paid an employee who was listed as absent.

The employer certainly appreciates this help. More importantly, producers can show employers how to carve out key employees from the mix, extend them lengthy sick pay time and then fund the plan with an individual DI policy.

In such arrangements, key employees can be selected without discrimination concerns, if the design uses such plan criteria as years of service, job title or income, or any combination thereof. The plan can be written on a simple one-page document and communicated to the key employees without any IRS filing requirements.

Such approaches have been used for the past several years. Now, fast-forward to todays environment of post-HIPAA LTC insurance sales. HIPAA, as you will recall, refers to the Health Insurance Portability and Accountability Act, the 1996 federal law that opened the door to sale of tax-qualified LTC policies.

While we LTC specialists still sulk about the mess created by having both tax-qualified and non-tax-qualified LTC products on the market, it doesnt pay to sulk too long. Now, there is much to be done in the corporate market with tax-qualified LTC sales, using the concepts already cultivated in the DI field as noted above.

Lets face it. Employers are always looking for ways to retain key employees. They see LTC events as a potential nightmare for their employees, especially during retirement, but they want nothing to do with any funding responsibility for that after the employee retires.

Enter “key employee LTC.” Once again, the same carve-out procedures can be used. If youve already set up a carve-out plan with this business, you can add LTC to it. If not, use the same criteria as above to establish a program for just the key employees the employer wants to cover with a tax-qualified LTC insurance program.

Keep in mind that there are two significant differences between the LTC and the DI plans you can set up. First, even if the employer pays for the key employee LTC policy (C-Corporations get the full deduction; in 2003, S-Corp owners, partners and sole proprietors can deduct 100% of the premium up to the individual deductibility limits), the benefits of a tax-qualified LTC plan (the only policies that allow deductibility) are received income tax-free. Thats a substantial difference from the DI policy where a deductible premium translates into taxable benefits at claim time.

Second, if the employer (C-Corporation most likely, due to the unlimited deductibility) buys a policy from a LTC insurer offering short-pay options (paid up in 10 years or paid up at age 65), you have a great story to tell the key employees. The employer is paying for the LTC policy that the employee will receive as a paid-up policy, with no future rate increases to worry about. This is a critical wealth protection vehicle with which to go into retirement. It may well soften the blow for retirees of employers that have found it impossible to fund retiree health insurance. And, it may likely help employers retain key people for a number of years.

This product creates a great opportunity to explore a market that has been underserved. Key employees are often older, experienced people, and they may well be aware of LTC events that have happened to someone they know. Paid-up LTC provides the best of all taxable worlds for employer and employee, along with having vital protection for the future.

In the 70s, Harry Chapin sang his “Circle” song. In the 1990s, Elton John added “The Circle of Life” for “The Lion King.” Now, agents can complete the trilogy with The Circle of Disability, adding LTC to their corporate clients employee benefit package.


Reproduced from National Underwriter Life & Health/Financial Services Edition, January 20, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.