Sr. Advanced Markets Consultant, Ash Brokerage, Greater NYC Area
A "tax-qualified" Long Term Care Insurance policy is one that conforms to requirements under IRC Section 7702B. Among other requirements, benefits must be triggered by inability to perform two out of six standard Activities of Daily Living (ADLs) or by cognitive impairment, the policy must be guaranteed renewable, it cannot provide a cash surrender value, and it has to incorporate specified consumer protection provisions.
The benefit of having a tax-qualified policy is that premiums paid will be partially tax-deductible, and benefits received by reason of claims paid are exempt from income tax.
Tax qualified life insurance was established in conjunction with HIPAA in 1996 so that people who itemize could deduct long term care premiums as a medical expense on their tax returns. It also allows those who collect on their long term care insurance to receive their benefits income tax free.
Tax qualified (TQ) life insurance policies have different triggers than traditional long term care insurance, which can make it harder to receive benefits. One of the triggers that was dropped was "medical necessity". Therefore, a person cannot get payments from their TQ LTCI policy just because a doctor wrote a letter saying they need that type of care. Also, their inability to perform at least two ADL's must be anticipated to last at least 90 days.
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The benefit of having a tax-qualified policy is that premiums paid will be partially tax-deductible, and benefits received by reason of claims paid are exempt from income tax.
Tax qualified (TQ) life insurance policies have different triggers than traditional long term care insurance, which can make it harder to receive benefits. One of the triggers that was dropped was "medical necessity". Therefore, a person cannot get payments from their TQ LTCI policy just because a doctor wrote a letter saying they need that type of care. Also, their inability to perform at least two ADL's must be anticipated to last at least 90 days.