What is tax-qualified long-term care insurance?

Most long-term care insurance policies available today are tax-qualified (TQ). If you have a TQ policy, your premiums may be eligible for tax deductions as a form of medical expense. In order to qualify for this kind of deduction, your LTC insurance premiums and other un-reimbursed medical expenses must exceed 10% of your adjusted gross income. The maximum amount of premiums that you can deduct for a given year depends on your age and will increase over time. While there are some exceptions, the benefits that these policies pay out are also typically excluded from income, which means that they aren’t subject to income taxes.

By law, tax-qualified policies have specific restrictions on when the policyholder can start receiving their benefits. The enrollee must expect to need care for at least 90 days and be unable to perform two or more activities of daily living (ADLs) or have some sort of severe cognitive impairment before they can start receiving benefits. A doctor must also provide a plan of care.

While uncommon, there are also non-tax-qualified (NTQ) long-term care policies. These policies generally have more relaxed requirements for receiving benefits, but they also come with a lot of tax-related complications and the potential for large bills come tax season.

Tax-qualified policies are required to be labeled as such, but many people still don’t know which category their policy falls into. If you need help determining whether a given plan is tax-qualified, contact your agent or the insurance company. If you’d like to learn more about tax-qualified policies and the advantages they offer, check out our articles on the benefits of buying LTC insurance and on things you should look out for when choosing a policy.

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