Long Term Care Insurance

Long term care insurance pays for long term care in places like a nursing home, an assisted living facility, or at home. Many people purchase it to protect their own savings and assets and remain independent in the event they ever need long term care.

This type of insurance is medically underwritten. This means you must answer questions about your health to determine if you're approved for coverage. Once you have coverage and meet certain benefit triggers, then you're eligible to receive the benefits of your plan. Typically, you must satisfy a waiting period before the insurance company will begin paying your benefits. The waiting period is similar to a deductible for other types of insurance such as health or car insurance.

Should you consider it?

Long term care insurance can be expensive and is not right for everyone. According to the National Association of Insurance Commissioners' "A Shopper's Guide to Long-Term Care Insurance," you should:

Consider buying it if...
  • You have many assets and/or a good income.
  • You don't want to use most or all of your assets and income to pay for long-term care.
  • You can afford to pay the insurance premiums, including possible premium increases (until you may need care).
  • You don't want to burden family or friends.
  • You want to be able to choose where you receive care.
Not buy it if...
  • You can't afford the premiums.
  • You don't have many assets.
  • Your only source of income is from Social Security or Supplemental Security Income (SSI).
  • You often have trouble paying for utilities, food, medicine or other important needs.
  • You're on Medicaid.

Note: Make sure to consult with a financial advisor for specific advice on your long term care planning.

Qualified plans

The Federal Long Term Care Insurance Program is designed to be a qualified insurance plan under Internal Revenue Code (IRS) section 7702B. There are some tax advantages if you buy a qualified long term care insurance plan that meets certain federal requirements:

Chronically ill

To receive long term care insurance benefits, you must be chronically ill. You're considered chronically ill if you're unable to do at least two activities of daily living without substantial assistance for at least 90 days, or you need substantial supervision because you have a severe cognitive impairment.

Prescribed plan of care

A licensed health care practitioner must certify that you're eligible for benefits and prescribe a plan of care that includes qualified long term care services.

Consumer protections

A tax-qualified plan must be guaranteed renewable, which means the insurance company can't cancel your coverage because of a change in your health or age. As long as you pay your premiums and have not used all of your benefits, your coverage will continue.

Federal tax benefits

Under a qualified plan, the benefits you receive generally aren't considered taxable income and you can deduct the premiums you pay as medical expenses as long as your total qualified medical expenses exceed 10% of your adjusted gross income.

The amount of long term care insurance premiums you can deduct depends on your age (see chart with the current published IRS limits by age). There may be additional tax benefits provided by your state. Check with your state insurance department for more information.

Note: Rates are subject to change each year as determined by the IRS. Go to irs.gov for the latest tax deduction information.

Your age Max deduction (2018)
40 or younger $420
41–50 $780
51–60 $1,560
61–70 $4,160
71 or older $5,200