Long-term care insurance is designed to cover long-term services and supports, including personal and custodial care in a variety of settings such as your home, a community organization, or other facility.
Long-term care insurance (LTC or LTCI) is an insurance product, sold in the United States, United Kingdom and Canada, that helps pay for the costs associated with long-term care. Long-term care insurance covers care generally not covered by health insurance, Medicare, or Medicaid.
Individuals who require long-term care are generally not sick in the traditional sense, but instead, are unable to perform two of the six activities of daily living (ADLs) such as dressing, bathing, eating, toileting, continence, transferring (getting in and out of a bed or chair), and walking.
Long-term care insurance can cover home care, assisted living, adult daycare, respite care, hospice care, nursing home, Alzheimer's facilities, and home modification to accommodate disabilities. If home care coverage is purchased, long-term care insurance can pay for home care, often from the first day it is needed. It will pay for a visiting or live-in caregiver, companion, housekeeper, therapist or private duty nurse up to seven days a week, 24 hours a day up to the policy benefit maximum. Many experts suggest shopping between the ages of 45 and 55 as part of an overall retirement plan to protect assets from the high costs and burdens of extended health care.
Many individuals may feel uncomfortable relying on their children or family members for support, and find that long-term care insurance could help cover out-of-pocket expenses. Without long-term care insurance, the cost of providing these services may quickly deplete the savings of the individual and/or their family. The costs of long-term care differ by region. The U.S. government has an interactive map to estimate the costs by state
Premiums paid on a long-term care insurance product may be eligible for an income tax deduction. The amount of the deduction depends on the age of the covered person. Benefits paid from a long-term care contract are generally excluded from income. Some states also have deductions or credits and proceeds are always tax-free.
Business deductions of premiums are determined by the type of business. Generally corporations paying premiums for an employee are 100% deductible if not included in employee's taxable income.
Types Of LTCI Policies
Private long-term care (LTC) insurance is growing in popularity in the United States. Premiums, however, have risen dramatically in recent years even for existing policy holders. Coverage costs can be expensive, when consumers wait until retirement age to purchase LTC coverage. As they relate to U.S. policies, two types of long-term care policies offered are:
Traditional policies are the most common policies offered. Traditional policy premiums, like automobile insurance premiums, are paid on a continual basis. If unused, no premiums are returned. However, if the policy has a "return of premium" rider, a death benefit will be paid to a beneficiary if the insured dies at a time when benefits received under the policy are less than the premiums paid to the insurer. The amount of the benefit is equal to the excess of premiums paid over benefits received.
Combination or hybrid policies are a combination of life insurance or an annuity with long term care insurance. Several varieties of these combinations exist.
As they relate to U.S. income tax, two types of long-term care policies offered are:
ax qualified (TQ) policies are the most common policies offered. A TQ policy requires that a person 1) be expected to require care for at least 90 days, and be unable to perform 2 or more activities of daily living (eating, dressing, bathing, transferring, toileting, continence) without substantial assistance (hands on or standby); or 2) for at least 90 days, need substantial assistance due to a severe cognitive impairment. In either case a doctor must provide a plan of care. Benefits from a TQ policy are non-taxable.
Non-tax qualified (NTQ) was formerly called traditional long-term care insurance. It often includes a "trigger" called a "medical necessity" trigger. This means that the patient's own doctor, or that doctor in conjunction with someone from the insurance company, can state that the patient needs care for any medical reason and the policy will pay. NTQ policies include walking as an activity of daily living and usually only require the inability to perform 1 or more activity of daily living. The Treasury Department has not clarified the status of benefits received under a non-qualified long-term care insurance plan. Therefore, the taxability of these benefits is open to further interpretation. This means that it is possible that individuals who receive benefits under a non-qualified long-term care insurance policy risk facing a large tax bill for these benefits.
Many long-term care insurance policies have limits on how long or how much they will pay. Some policies will pay the costs of your long-term care for two to five years, while other insurance companies offer policies that will pay your long-term care costs for as long as you live no matter how much it costs. But there are very few that have no such limits.
Once a person purchases a policy, the language cannot be changed by the insurance company, and the policy usually is guaranteed renewable for life. It can never be canceled by the insurance company for health reasons, but can be canceled for non-payment.