What Is a Tax-Qualified Long-Term Care Insurance Policy?
A tax-qualified long-term care insurance policy meets federal standards set under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Benefits generally aren’t taxed as income up to federal limits, and premiums may be partly deductible as a medical expense. These policies use a standard rule for when benefits can start.
What makes a policy tax-qualified?
Benefits are triggered when a licensed health care practitioner certifies that you either can’t perform at least two of six activities of daily living for at least 90 days, or need substantial supervision because of a severe cognitive impairment. Care is provided under a plan of care. See What Happens When You File a Long-Term Care Insurance Claim?.
How are benefits taxed?
Benefits are generally received tax-free up to the greater of the federal per diem limit or your actual long-term care costs. They can be taxable in some circumstances.
Are premiums tax-deductible?
Premiums for qualified policies may count as medical expenses, subject to age-based limits on how much can be included. Medical expenses are generally deductible only if you itemize and only above a threshold based on your income. Self-employed people may have different rules. (IRS Publication 502)
What about linked-benefit policies?
For policies that combine life insurance and long-term care coverage, tax rules can apply differently to the long-term care portion and the death benefit. Death benefits are generally paid income tax-free to beneficiaries.
Who should you talk to?
Staying Power is a licensed insurance agency that can tell you whether a policy you’re considering is tax-qualified.
A tax advisor can explain how these rules apply to you. A licensed agent can tell you whether a policy you’re considering is tax-qualified. Start with a few questions.
Related reading: What Determines Your Long-Term Care Insurance Premium? and How Does Long-Term Care Insurance Work?.
Frequently asked questions
Can I use an HSA to pay premiums?
Some long-term care insurance premiums may be eligible for HSA reimbursement, subject to age-based limits. Talk with a tax advisor.
Are all long-term care policies tax-qualified?
No. Ask your agent whether a specific policy is.
