Introduction to Tax Aspects of Long-Term Care Insurance

Under what circumstances can premiums be paid in a tax-advantaged manner? Under what circumstances will policy benefits be subject to income tax? These are the central questions we will address here. But tax answers are often unclear, and seldom is tax the only issue to consider in making a decision. So a bit of background will be helpful first.

As with all insurance products, there are tax advantages to owning and using long-term care insurance. However, these tax advantages are not always plainly visible. Since its inception, long-term care insurance has sought the same tax-favored status held by medical insurance even though it is clearly not medical insurance. However, Congress has favored the long-term care industry by granting favorable tax treatment to some policies that meet its requirements.

There are now available both tax-qualified and non-tax-qualified policies. Both have advantages and disadvantages and should be considered in a well-thought-out financial plan.