Your Money: Half Price: Long-Term-Care Insurance

We’ve been discussing in recent months the many reasons that physicians, with their higher-than-typical incomes - and therefore greater-than-typical liability and taxation risks - should consider unconventional financial planning techniques, rather than slavishly heeding the kind of advice that’s developed for “average” Americans.

The fact is, you’re an above-average American. That may seem like a blessing, but it is actually a burden when it comes to finding legal, financial, and tax advice. The common advice, appropriate for 90 percent of Americans, can be damaging for physician families, who, quite frankly, can’t just “buy off the rack” when it comes to professional services. In the November-December issue of Physicians Practice, we examined unconventional retirement-planning strategies.

This month, we’ll reveal a major tax benefit that many physicians aren’t taking advantage of.

Risk: Failing to utilize a major tax incentive that could save you thousands.If we told you that the federal government is willing to pay half the cost of something you need, you’d be interested, right? Of course you would. That’s why we’re surprised at the number of people who don’t realize that the Internal Revenue Service will allow you to deduct the cost of long-term-care insurance; that amounts to a 50 percent savings if your combined federal, state, and local tax marginal rate is close to 50 percent.

Suggestion: Buy long-term-care insurance through your practice, and let the government pay half. More than six out of 10 American households will require some sort of long-term care. Perhaps this assistance will be limited and relatively inexpensive. Perhaps you or a loved one will require many years of intense, expensive care. In either case, without long-term-care insurance, you will have to pay for this help from your savings. You may purchase long-term-care insurance through your practice - for both yourself and your spouse (even if your spouse is not a physician) - without having to offer it as an employee benefit. And you pick up a tax deduction for 100 percent of the premiums if they are paid by your practice.

We understand that you will not practice medicine forever. No problem. You can pay your entire lifetime’s worth of premiums over a 10- or 20-year period so that all premiums come from your operating practice - and are 100 percent tax deductible. This way, when you retire, your premiums have been paid in full and the government has subsidized every payment.

There are also nontraditional, nonqualified retirement plans that allow you to make contributions of $100,000 to $1 million per year and access the funds before age 59.5 if you wish. Again, you can set this up through your practice without having to offer it as an option for all your employees. Further, these plans can be set up to be very important pieces of a family’s estate plan without sacrificing tax deductions or control of the assets.

We’ll conclude this series in February with a discussion of some seriously flawed assumptions about finance and investing that have cost investors thousands of dollars per year. If you would like to learn how to retain more of your investments (after taxes and fees) and reach the level of financial freedom you deserve, please make sure you read the next issue of Physicians Practice.

Christopher R. Jarvis, MBA, is a lecturer and author of “Wealth Protection, MD.” He is also a cofounder of The Wealth Protection Alliance, a nationwide network of elite independent financial advisory firms whose goal is to help clients build and preserve their wealth. Charles P. KinCannon, JD, LLM, is a certified wealth consultant with the Heritage Institute and provides sophisticated business planning to physicians around the country. Jarvis and KinCannon can be reached at 800 554 7233 or via editor@physicianspractice.com.
This article originally appeared in the January 2007 issue of Physicians Practice.