It's tax season! Traditional long-term care insurance has tax advantages that you need to know about.
Q: Is tax-advantaged the same as tax-qualified and what does that mean?
A: “Tax-qualified” is a term used to describe “pure” or “traditional” long-term care coverage. There are also “hybrids” which incorporate an element of life insurance (i.e., death benefits) but they do not have the same tax advantages as these tax-qualified long-term care plans. Most traditional LTC sold these days meet the special “tax-qualified” criteria which were established by federal law in the early 1990s. This law set up a standardized level of coverage to include the “2 of 6 ADL” eligibility trigger and the “severe cognitive impairment” trigger, along with the comprehensive nature of the benefit (prior to this law there were many “nursing home only” policies out there and this did away with those restrictive policies).
Q: Which type of policies are tax-advantaged?
A: Traditional long-term care insurance plans are typically the only tax-advantaged plans. Hybrid LTC/Life policies are (almost) all written on a life insurance chassis, so they don’t benefit from these tax advantages. However, some carriers’ LTC Riders on a life policy are eligible for these tax advantages. Again, that’s solely for the portion of the LTC rider—not the base life insurance plan. The rider’s cost is itemized on the illustration so it’s pretty easy to see what deductions are available at the time of quoting.
View our 2022 Tax-Qualified Long-Term Care Insurance flyer for details.