There are a lot of good reasons to buy long-term care insurance. Uncle Sam adds to the list with tax benefits, but there are a few strings attached. The policy has to have certain features that make it tax-qualified.
Contact an independent insurance agent. Learn how to protect yourself and your retirement plan from the cost of long-term care.
What Is a Tax-Qualified Long-Term Care Policy?
Long-term care policies that meet the standards of the Internal Revenue Code are eligible for tax benefits. The policy has to pay benefits if you:
- Cannot perform 2 of the six activities of daily living
- Have a cognitive impairment
The policy must be guaranteed renewable, and offer inflation protection and a non-forfeiture option. The policy cannot have any cash value. It can only pay benefits for long-term care services.
|Daily Benefit||Cash benefit per day. Usually paid monthly|
|Benefit Period||How long benefits are paid. Usually 2 yrs, 5 yrs or lifetime.|
|Waiting Period||When benefits begin after eligibility. Usually 30, 60, 90 or 180 days.|
|Activities of Daily Living||Used to determine eligibility for claims. Eating, dressing, bathing, toileting, transferring, continence.|
|Cognitive Disorders||Diseases that affect memory, learning, perception and problem-solving. Dementia and Alzheimer's are cognitive disorders.|
|Indemnity Long-Term |
|Benefit is not limited to actual cost of care.|
|Reimbursement Long-Term Care Policy||Benefit is limited to actual cost of care.|
|Non-Forfeiture Option||Value of policy if cancelled.|
|Guaranteed Renewable||Insurance company cannot cancel the coverage if the premium is paid. They can raise the premium under certain conditions.|
|Skilled Care||Skilled care is nursing and therapy care provided by medical professionals.|
|Custodial Care||Non-medical care assisting activities of daily living.|
Tax-Qualified Vs Non-Tax-Qualified Long-Term Care Insurance
Long-term care policies that have cash value or pay other benefits are not tax-qualified. These policies are called hybrids, because they are life insurance policies that pay long-term care benefits.
Are Long-Term Care Premiums Tax-Deductible?
If your traditional long-term care policy meets the requirements to be tax-qualified, the premiums may be tax-deductible. The long-term care tax deduction is calculated as part of the deduction for medical expenses. For 2019 you can deduct medical expenses that re more than 10% of adjusted gross income.
The IRS limits how much of your long-term care policies can be included in medical expenses.
|40 or less||$420|
|More than 40 but not more than 50||$790|
|More than 50 but not more than 60||$1,580|
|More than 60 but not more than 70||$4,220|
|More than 70||$5,270|
Traditional vs. Hybrid Tax Deductions
Only Traditional long-term care policies are tax-qualified. Hybrids are not tax-qualified because they have cash value.
Can a Business Deduct Long-Term Care Premiums?
Self-employed business owners can deduct 100% of long-term care premiums up to the age limits. Partnerships and corporations can deduct 100% of long-term care premiums. There is no age limit.
Are Long-Term Care Insurance Benefits Taxable?
The benefits are tax-free up to $370 per day or the actual cos,t whichever is greater. Benefits paid by traditional and hybrid policies are usually tax-free.
Benefits paid by indemnity policies may be taxable if the payments exceed the limits.
Why Go It Alone?
Long-term care insurance is an important part of smart retirement planning. There is a lot to know about the coverage. Contact your independent insurance agent. They can simplify the process for you.
©2020, Consumer Agent Portal, LLC. All rights reserved.
irs,u.s. hhs,cdc iii