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Some people are worried that they will wind up in a nursing home with their life savings wiped out. But that doesn't have to be the case. You can buy some peace of mind with long-term care
insurance.
But caveat emptor: These policies can be expensive, complicated and they don't always cover all the costs involved.
First, the good news: If you purchase long-term care insurance, you may be able to get a limited tax deduction. Plus, benefits received under a "qualified" long-term care policy are generally tax-free. However, like most tax breaks, Uncle Sam imposes several limitations:
 Premiums paid for qualified long-term care insurance are deductible only up to an annual amount, based on the age of the insured person.
Long-term care insurance is considered a medical expense for tax purposes. To be deductible on your return, medical expenses must exceed 7.5 percent of your adjusted gross income. This makes it difficult to qualify for a write-off unless you have a lot of other health costs that aren't reimbursed by insurance.
The current tax deductions aren't usually valuable enough to justify buying long-term care insurance primarily for tax purposes. As you get older, the costs increase and you could wind up paying more in premiums than you're trying to protect in assets.
Keep in mind that most people will never have to live in a nursing home for years on end. Many stays only occur for a short time after hospitalization. And Medicare pays all or part of the cost of skilled nursing facilities for the first 100 days.
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What Policy Options Should You Look for?
If you're interested in long-term-care insurance, you should look into the coverage before you need it — perhaps when you are in your 40s, 50s or early 60s. Choose a highly rated insurance company. Shop around and review the policies for the following features:
 The benefit amount should be adequate. Most policies pay a specified amount per day, so you will have to pay the difference.
Benefits should increase with inflation. You may not receive benefits for many years, so it's important to make sure that the amount increases with inflation.
Covered services should include skilled care, intermediate care, custodial care, home health care, and adult day care.
There should not be a requirement that you must first be hospitalized to receive benefits. There should also be no requirement that you must first  receive skilled nursing home care to receive intermediate or custodial care, or that you must first receive nursing home care to receive home care.
Benefits should be payable when you can't perform two or three activities of daily living such as bathing, dressing, eating, walking, transferring from a bed to a chair, using the bathroom, or remaining continent. Another condition that should qualify is cognitive impairment.
Specific coverage should exist for Alzheimer's disease and other organic-based mental illness. Some policies exclude these conditions.
The policy should be guaranteed renewable, meaning the policy can't be canceled due to age or deterioration in health.
Select a reasonable waiting period and a benefit period you are comfortable with. The longer you wait before benefits begin, the lower your premiums. |
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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