Insurance Needs of the Small Business Owners

By Smith, David J. | The National Public Accountant, September 1999 | Go to article overview

Insurance Needs of the Small Business Owners


Smith, David J., The National Public Accountant


* You have about a one in 80 chance of ever using your homeowner's insurance.(1)

* You have about a one in 40 chance of using your automobile insurance.(1)

* About 30 percent of people ages 35 to 65 will be disabled for at least 90 days during their working careers.(2)

* You have about a 60 percent chance that you're going to be in a nursing home after age 65.(1)

* About one in seven can expect to be disabled for five years or more.(2)

* In the United States, one out of every two men and one out of every three women will develop cancer at some time in their lives.(3)

Just by looking at probability statistics, it's hard to understand how most people make their insurance-buying decisions. Apart from homeowners and auto insurance, many Americans depend on their employers and state and federal government to take care of their insurance needs. However, as a small business owner, you do not have the luxury of relying on somebody else ... the responsibility for protecting personal and business assets rests solidly on your shoulders.

The National Society of Accountants (NSA) includes insurance programs as an important member benefit expressly so that members can have easy access to reliable coverages, stable insurance companies and plans designed specifically for accountants. The insurance portfolio includes life, disability, accidental death, business overhead expense, cancer, professional liability, property and liability, and more.

The newest addition to NSA's portfolio is the Long Term Care Insurance Evaluation Service through Forrest T. Jones & Company (FTJ). The media has devoted significant blocks of time and space to the financial status of Social Security, Medicare and Medicaid programs. When examined within the context of the rising costs of nursing home care and extended life spans, the problem takes on crisis proportions. That's why Congress has passed legislation which gives incentives (tax deductions), especially to small business owners, to purchase long term care insurance for themselves and their employees.

Kennedy/Kassebaum: Tax Incentives

"Qualified" long term care insurance plans meet standards set by the Health Insurance Portability and Accountability Act of 1996 (Kennedy/Kassebaum). Benefits up to $190 per day received from a qualified plan are not taxable. Additionally, Congress has implemented tax deductions for long term care insurance premiums paid by both individual taxpayers and small business owners.

Small Business Owners

The 1998 Omnibus Appropriations Conference Agreement signed by President Clinton accelerates the phase-in of a 100 percent deduction for small business owners and increases the percentage of premiums that may be deducted. A person who is self-employed as defined by Section 162(1) of the Internal Revenue Code may apply the following percentages to any premium he or she pays on long term care insurance for:

* self,

* spouse,

* dependents, and

* employees.

                                      PERCENT OF PREMIUM
TAXABLE YEAR                          THAT IS DEDUCTIBLE

1999-2001                                       60%
2002                                            70%
2003 & AFTER                                   100%

The Purchasing Decision

Even after understanding the probability of needing long term care and the high cost of care . …

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