LTC: Insurance when you need it most
A recent insurance industry survey indicates the odds of an individual experiencing a disability or illness requiring extended custodial or medical support are 120 times greater than losing a house due to fire or some other catastrophe. At the same time, while advances in medicine and technology are extending people’s lives, the cost of long-term medical care is rising at an alarming rate. Put all this information together and it seems clear enough that long-term care (LTC) insurance seems like a very good idea.
What is it: LTC is the kind of care a person, young or old, needs when assistance is required to perform normal life activities such as bathing, dressing, eating or just moving around. The need for such care can result from a variety of circumstances, ranging from old age to sickness, accidental injury or any disability that prevents an individual from performing these tasks. Sometimes this care is provided in a nursing home, but it may surprise you to know that approximately 85% of LTC is provided at home or in assisted-living facilities.
Medicare may provide short-term coverage for stays in skilled nursing homes, but it is not intended to cover custodial or assisted-living care, nor does it cover extended home health care. As a result, the United States Government Medicare guidebook suggests that Americans should not count on Medicare as their primary source of LTC funding.
Fortunately, the tax law provides benefits to encourage individuals to purchase LTC insurance.
Tax deductions: If you purchase a qualified LTC policy, you may be able to treat the premiums as medical expenses, assuming you itemize your deductions. You may be able to claim a deduction to the extent your total medical expenses (including LTC premiums) exceed 7.5% of your adjusted gross income. There is a dollar limit, however, on the amount of the premium that can be treated as a medical expense.
Self-employed taxpayers, meanwhile, can deduct 100% of their health insurance premiums, whether or not they itemize their deductions. And for this purpose, health insurance includes qualified LTC insurance. However, the deduction for LTC insurance premiums is subject to the dollar limits mentioned above.
Caveat: In order for an LTC policy to be a “qualified” plan certain requirements must be met. For example, policy must be guaranteed renewable and the policy generally cannot provide for a cash surrender value or other funds that can be paid, assigned, borrowed or pledged as a loan. And the policy issuer must inform you that the policy is intended to be a qualified policy.
For your consideration: As LTC policies covers you for long-term care, Medicare Supplemental, AKA Medigap, fills in the gaps of what Medicare doesn’t cover for extended stays -protecting seniors from healthcare financial burdens. To learn more about Medigap or to apply today go to the Medigap Policy Overview for Seniors Page.
Final point: There is legislation pending in Congress that would create additional benefits for purchasers of LTC insurance. Refer back for any late breaking tax developments affecting LTC policies.
Please note that this is not tax advice. Please consult a tax professional.