Long-Term Care Insurance (LTCI) is a form of health insurance designed to cover long-term services and supports, such as personal care. LTCI reimburses policyholders for daily services that assist with daily living (i.e., bathing, dressing, or eating). While Medicare will only cover a short stay in a home or a limited amount of home-care, there are many different coverage options provided for LTCI to fit the needs of many.
Long-term care policies can be employer-sponsored, offered by different organizations, and provided by the State. Services covered by this insurance is relatively expansive including home modifications, assisted living, nursing homes, care coordination, home care, and adult day care.
With more than one million seniors live in Assisted Living across the U.S. paying out of pocket for their monthly fees, it makes sense that at some point within a lifetime, an individual will need LTCI. When using LTCI, those out of pocket payments become tax deductible.
According to the IRS: Publication 525, LCTI is treated like health insurance, as in income received for sickness or injury are typically excludable from income tax, and paid premiums generally are tax deductible. However, LCTI policies must offer a guaranteed renewable and refuse a cash surrender value to qualify for deductions. Therefore it is imperative to pay attention to policy details and do some research before signing up.
According to Amy Danise, insurance editor for NerdWallet, the most significant tax benefit of long-term care insurance policies is the ability to deduct the paid premiums. Here’s the way it works: If your health care costs exceed 10% of your adjusted gross income (AGI), the excessive amount can be deducted. So, for example, let us say that 10% of your AGI is $200 and your health care expenses totaled up to $350. You could then deduct $150 on your income taxes.
However, while these deductions are reasonably similar for all, the policy holder’s age determines the dollar amount that can be deducted. For 2017, deductions limits were set at: $410 for 40 years old or younger; $770 for 41 to 50-year-olds; $1530 for ages 51 to 60; $4,090 for those 61 to 70; and $5,110 for all 71 years of age and older.
Before determining whether Long-term care insurance is right for you or a loved one, do a substantial amount of research. There are policies worth the effort; you just have to take the time to find them.