Long-term care insurance helps provide the cost for long-term care including things like in-home care, stays in assisted living facilities, adult daycare, respite care, hospice care, nursing home and Alzheimer’s facilities. It is a great purchase to save oneself from the high cost of long-term care, which without a policy can quickly deplete savings accounts of you or your loved ones. There are many types of long-term care insurance to consider.
One type of long-term care policy is the tax-qualified policy. With this type of policy you may be able to deduct part of the premium for a tax-qualified long-term care policy from your taxes as a medical expense. Typically you do not have to claim your qualified long-term care insurance policy as taxable income, however in some cases you may have to pay taxes on benefits the policy pays above the cost that pay for care.
Every policy that was sold before 1997 is automatically tax-qualified and any policy sold after are either tax qualified or non-tax qualified. Tax qualified polices are more common. They require that a person is expected to receive at least 90 days of care and unable to perform two every day activities without assistance. These every day activities include eating, dressing, bathing, transferring and toileting. These policies also require that for at least 90 days, the person needs substantial assistance due to a cognitive impairment. With either of these specifications, a doctor must provide a plan for care and then the policy is non-taxable.
Non-tax qualified policies often include a medical necessity trigger, meaning that the patient’s own doctor can state that the patient needs care for any medical reason. With the doctor’s word the policy will pay for the care. Non-tax qualified policies count walking as an activity of daily living and they typically only require the inability to perform one of these activities. The treasury department has not clarified the status of benefits received under a non-qualified long-term care insurance plan, and because of this the taxability of these benefits is open to interpretation. This means that it is possible that individuals who receive benefits under a non-qualified long-term care insurance policy risk facing a large tax bill for these benefits.
Non-tax policies are dwindling because consumers want to be eligible for the tax deductions available when buying a tax-qualified policy. The difference between these two polices can be complicated, making it important to talk with an insurance agent to discuss the pros and cons of a tax-qualified policy versus a non-tax qualified policy.
In addition to tax and non-tax polices there are different ways to purchase policies. There are individual polices, which vary from one company to the next. There are group polices, which may offer discounts from your employer or there are couple policies.
This is just an overview of some of the different long-term care polices that exist. Within these categories there are many different coverage options that exist, which can all depend on the kind of care you want to have coverage. Your local insurance agent will be able to answer any policy specific long-term care questions.
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