Small businesses perfect for LTCI sales

About 10 years ago, as a brokerage general agency focused exclusively in long-term care insurance, we noticed an interesting trend. More applications for LTCI were showing up at our office with mismatched checks. For instance, the applicants name would be Sally Brown, but the check would be from a company named Summit Architecture.

It didn't take long to figure out what was going on. Savvy business owners were discovering that the 1996 HIPAA legislation allowed them to pay for LTCI premiums out of the business. Not only did the legislation allow for benefits to be received tax-free, but now closely-held businesses and the self-employed could also deduct the premiums.

Let's face it -- one of the benefits of being a small business owner is the opportunity to use hard-earned corporate dollars for personal benefit. Small business owners enjoyed a discount off their policies compared to a retail purchaser. In addition, the HIPAA legislation allowed them to extend the benefit to other executives and associates in their group (due to the fact non-discrimination rules for long-term care are non-existent). As a result, you can creatively class a group of associates together, such as all associates with certain years of service.

The dependents of these business owners could also be included in the plans. Since the majority of LTCI policies are sold to married couples, this ability to deduct the spousal premium was also critical to the success of corporate plans.

LTCI can be a difficult sale. The potential purchaser must be able to understand the implication a devastating disease, such as Alzheimer's, could have on their family and retirement plan. Business owners, however, are inherently more receptive to the possibility of risk and using insurance as a risk-avoidance technique.

As the advantages became more popular, insurance carriers began to actively develop new features to attract small business owners. The first approach was to offer premium discounts of 5 percent to 10 percent if a minimum number of applications were received (typically three or five). As an additional benefit, simplified underwriting was also used to make the application process easier.

If your practice has several advisors, it makes business sense to implement your own plan. In addition to the premium and underwriting considerations, the premium is commissionable for additional savings. Going through the process with your own firm allows you to confidently recommend the approach to your business owner clients. Ultimately, you don't want to recommend the product if you don't own it yourself.

LTCI also works in the corporate setting because the benefits are linked to the qualified retirement plan. When someone realizes that the biggest threat to a person's retirement portfolio is a catastrophic long-term care event, they will seek out solutions to protect it.

Another popular option on corporate LTCI is the paid up policy, where premiums are paid for a period of time (either 10 years or to age 65). We call this benefit paper handcuffs, because, although a policyholder can take the policy with them should they leave the company, the fact their company is paying the premium on their behalf creates loyalty to the organization.

With 2008 upon us, consider taking a look at implementing a corporate LTCI plan in your practice. It will not only offer your advisors another company perk, but it will also actively encourage additional LTCI sales.

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