An Introduction to Long Term Care Insurance

The federal government has made clear its position regarding long term care costs through the Health Care Portability and Accountability Act of 1996 (Kennedy-Kassebaum Legislation). The government determined that it could not afford to pay the costs of long term care, and needed to find a way to encourage citizens to use long term care insurance to ensure a more secure retirement.

The increasing costs for long term care have been of great concern as our population has continued to age with prospects of many more years spent in retirement. Long term care is more a financial issue than a health issue. The choices that one has, if care is required, will be determined by the amount of money available to pay for home care or facility costs. The quality of our lifestyle as we age will be affected by the financial decisions that we made today.

This booklet will provide an overview of long term care issues and a summary of the factors to consider when purchasing a long term care insurance policy.
 

Long Term Care Insurance Tax Qualifications

To qualify for federal income tax advantages, long term care insurance policies issued after 1996 must meet new federal standards and requirements.

Purchasers of plans that "meet federal standards will be rewarded with a deduction for their long term care premiums (subject to limitations) and benefits excluded from taxation. Information about all benefits paid under both qualified and non-qualified plans must be reported by the insurance company to the Internal Revenue Service.

Summary of New Law-Standards and Requirements
for Federally Qualified Long Term Care Policies:

• LTC insurance premiums will be deductible as a medical expense for those who itemize, subject to limitations.
   

• LTC insurance benefits received by claimant will be tax-free to the recipient, subject to limitations.

• LTC expenses that are not covered by insurance will be deductible for those who itemize, subject limitations.

• Employers who pay LTC premiums on behalf of an employee will be entitled to deduct that premium as a business expense, as they do for medical insurance.
   

• LTC premiums paid by an employer on behalf of an employee will not be treated as income to that employee.