Long Term Care Insurance

Today TaxMama® hears from Connie in the TaxQuips Forum with an excellent question. “I have a long term care insurance policy that I took out last year. This insurance is to cover you if you are put in a nursing home or other type of care facility; it is not long term disability insurance. I was told by someone that the premium was tax deductible. Is that true?”

Ask TaxMama

Hi Connie,

Yes, long-term care insurance is probably a good idea if you expect to have a long life
(look at family members) and expect to be incapacitated for a large part of the end of it. Then, definitely get the long-term care insurance! However, if you look around you at your family members and they tend to be in good health and self-sufficient, even at age 85,…maybe it’s not quite as necessary.

After all, long-term care insurance is REALLY costly.

Can you deduct the premiums? Yes. But only up to a limited amount based on your age.

You can deduct your qualified long-term care premiums up to the amounts shown below up to the amount of premiums you have paid for the year:

  1. Age 40 or under – $340.
  2. Age 41 to 50 – $640.
  3. Age 51 to 60 – $1,270.
  4. Age 61 to 70 – $3,390.
  5. Age 71 or over – $4,240.

Suze Orman is a big advocate encouraging people to buy long-term care insurance.

Considering the price, what are the benefits? Read the policy carefully and understand what you do and don’t get. The two main things you want are:

1) The ability to get full care in your own home so you never need to be institutionalized.
2) Or, if you need to live in a facility, the right to select the BEST facility (or a specific facility) in the area where you want to live out the last years of your life.

On the other hand, if you are young enough that you won’t need the care quite yet (for 20-30 years), considering taking those premiums you would pay for that policy and putting the money into savings or conservative investments. (Visit Dave Ramsey’s investment calculator and enter your potential interest rate and the premiums your paying now, as a monthly amount.)

Or investigate the cost of a whole life insurance policy that builds up cash value and pays out if you get very ill.  (We’ll be hearing from the insurance community telling me how wrong I am!)

Or…do what you did. Be safe and buy that long-term care policy!

And remember, you can find answers to all kinds of questions about long-term care coverage and other tax issues, free. Where? Where else? At www.TaxMama.com.

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3 thoughts on “Long Term Care Insurance

  1. TaxMama says:

    These are very interesting notes.
    It’s disturbing that the LTC premiums can suddenly increase dramatically.
    As my associate pointed out, the LTC companies (who ARE paying out a fortune) are banking on the fact that people who start paying for these policies when they are younger may not be able to keep up the premiums right before they are about to need the care. So they never get to cash in on the benfits.

    Pradeep, thanks for the tips about the different kinds of life insurance riders.

    And yes, using the benefits will decrease death benefits – so the heirs will get less.
    Too bad!

  2. Pradeep Audho says:

    Eva – A few opinions/thoughts on your post…

    Regarding Long Term Care policy premiums…
    LTC premiums are usually not guaranteed to remain the same…they can be increased by the insurance company. So anyone buying a policy should be aware of this. After you are retired and have a fixed income, an increase in your premiums would not be a good thing…but it’s been happening a lot lately. Over the past few years most companies selling LTC have requested premium increases on existing policies.

    On your whole life suggestion….
    “Or investigate the cost of a whole life insurance policy that builds up cash value and pays out if you get very ill. (We’ll be hearing from the insurance community telling me how wrong I am!)”
    I would never tell the Tax Mama that she is wrong. Are you saying she can use the cash value to pay for LTC? She certainly can, but the amount of the cash value on an average whole life policy will be wiped out pretty quickly by nursing home or home care costs. An alternative might be a Whole Life or Universal Life policy which allows you to add a chronic illness rider/Long Term Care agreement rider. If you bought a $500K death benefit whole or universal life policy with the chronic illness rider / LTC rider, you will be able to use 2% or 4% of the death benefit per month to pay for home care/nursing home care. There are limits, so read the fine print. Of course, if you are using this feature, your death benefit will be decreasing dollar for dollar, so your beneficiaries might not be thrilled! There might be tax consequences, so talk to your tax advisor. And as usual, it might not be available in all states.

    Also, IF someone has the funds available, there are companies which would allow you to buy a single premium LTC/Life combination policy. For example, you can use $100K, buy a policy and it provides a death benefit and also a certain amount of benefit for nursing home/home care. If you never use the nursing home/ home care benefit, – your deposit is fully refundable. Some companies give you an interest rate credited on the deposit and others do not. (read the fine print and as always it varies by company and state of residence)

  3. JustA Taxpayer says:

    I had Long Term Care (LTC) insurance for three years. Out of the blue, the company decided to raise the premiums because they ‘THINK’ the future care will increase and therefore they justified raising everyone’s premium by 16%. They said I could keep the same premiums but they would decrease my benefits by a considerable amount due to their new calculations. This is a very large insurance company.

    To my way of thinking, the LTC insurance is another scam by the insurance companies to get premiums without ever giving any benefits. They can raise the premiums for any reason, don’t really have to have any basis for justification and then they get to keep all the premiums that have been paid in the past.

    Personally, I’ll put that amount into my own LTC account (IRA) and have control over my premiums. Don’t think the insurance companies are your friend.

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