Tax-Qualified Long Term Care Insurance

Tax-Qualified Long Term Care Insurance

Tax-Qualified Long Term Care Insurance policies save money because you do not pay taxes on benefit payments, which can easily exceed hundreds of thousands of dollars.

Tax Deductions Also Possible

Tax-Qualified Long Term Care Insurance policies are also  tax deductible in certain circumstances. These policies state that, “this policy is intended to conform to IRS standards for Tax-Qualified Long Term Care Insurance.”

Tax-Qualified Long Term Care Insurance officially began in 1996 when the HIPAA law was enacted.  Policies with specific language defining benefit payments and consumer protection provisions may offer favored tax treatment.

www.irs.gov/pub/irs-regs/td8792.pdf

The official IRS regulations regarding Long Term Care Insurance

Tax Qualified plans have many “features” that set them apart from non “TQ” policies, but some notable features that will be included in all policies, hence making comparisons much easier, will be:

  • Benefit Triggers
    • Activities of Daily Living: 2 of 6 standard ADLs will trigger benefit consideration.
    • Severe Cognitive Impairment such as Alzheimer’s or Dementia will also trigger consideration.
  • Consumer Protections
    • Consumers can set up third-party notification of unintended lapse which will allow a loved one the chance to salvage a non-paid policy before it is canceled.
    • Free Look Period – all policies can be reviewed for 30 days with no recourse if canceled.
    • Contingent Nonforfeiture benefits are included at no cost.
  • Policy Features
    • Tax Qualified Long Term Care Insurance policies must include an optional Nonforfeiture Benefit.
    • Inflation protection options must be offered.  We recommend 5% compound inflation protection.

As a consumer, one reassuring thing about considering Tax Qualified Long Term Care Insurance policies is that comparing apples to apples is significantly easier than it otherwise would be since so many of the fundamental aspects of the policies are required to be written the same way.  Not to say that they’re identical, but there are many similarities in key areas.

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