Tax Implications of Long-Term Care Insurance

Posted on 30. Apr, 2014 by in Small Business Tips

Tax Implications of Long-Term Care Insurance

long term care ins

We’re all living longer. Health insurance premiums keep going up over the rate of inflation. Nursing home and assisted living costs are draining the assets of the elderly. What can you do? The answer for many is long-term care (LTC) insurance.

What is it?

In short LTC insurance pays for personal care services if you can no longer care for yourself due to some prolonged illness, disability or cognitive problem. These policies help cover the cost of maintaining a quality of life when your long-term prospects require the help.

There are many versions of LTC insurance and what is covered. There are also many points of view on what is the correct type of coverage and whether LTC policies are cost effective. The purpose here is not to judge whether LTC insurance is right for you, but to let you know that there are federal tax benefits with LTC insurance that should be considered in your evaluation of an LTC policy.

What you need to know:

  • Income received from LTC insurance payouts is usually not taxable
  • Premiums paid for LTC insurance can be tax deductible
  • Be careful of the gotchas. Among other things, to be a qualified LTC policy the policy must have guaranteed renewal and have no cash surrender value. You must also be “chronically ill” per the IRS definition to have benefits be non-taxable.
  • The amount of the premium deduction can be limited. Remember, medical expenses are itemized deductions that may only be taken when they exceed 10% of your adjusted gross income (7.5% if 65 or older). In addition, the deduction is limited by your age. Here are the annual premium limits for 2013:


Long-term Care Premium Deduction


Premium Limit

Age 40 and under


Age 41 – 50


Age 51 – 60


Age 61 – 70


Over age 70




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