Are Long Term Care Insurance
Premiums Tax Deductible?
For anyone with tax strategies on their mind, one important question before purchasing long term care insurance policy is “Are long term care insurance premiums tax deductible?” Considering the fact that other types of insurance premiums may or may not be taxable, depending on your status, whether or not you have a business, what you do for a living and many other variables, it is definitely a question worth looking into.
If you want them to be…
The answer to this question is a resounding yes and no. The tax deductability of long term care insurance premiums can go either way. The dreaded “it depends” is the best answer. You can have long term care insurance premiums which are tax deductible and you can also have such premiums that are not. Whether you want to take advantage of the tax break is something you need to seriously consider, because the changes it makes to your policy may not make it worth your while. There are also some hoops to jump through tax-wise to even be able to use the deduction that such premiums would give you.
Using The Long Term
Care Insurance Tax Break
Qualified long term care insurance provides tax deductible premiums while non qualified long term care insurance does not. However, the tax deductible premiums have an age-based maximum deduction. Your allowed deduction may be less than $300 if you are under the age of forty and while this increases with age, there are other limitations on how much you can claim. The deduction for such premiums is only allowed as a medical expense, which cannot be even used unless it totals more than 7.5% of your adjusted gross income. For those with very high incomes and good health, this may be a deduction that is very hard to use. The other positive point for qualified insurance is that the benefits you receive in the future are not taxable because they are not seen as income.
The Differences Between
Tax-Qualified And Non-Qualifed
While non qualified long term care insurance is not tax deductible for premiums and may even be taxed when benefits are paid out, it does have some clear benefits. The requirements necessary before the policy takes effect are easier to meet under the non qualified policy. There is no minimum amount of time to be unable to do activities of daily living before the policy pays, unlike the qualified policy that requires inability of this type for at least ninety days. The degree of mental incapacity must also be severe before the qualified policy becomes active, unlike the non qualified policy that just requires a doctor’s statement of necessity. Such differences may or may not out weigh the potential tax benefits.
One unknown is what will happen in the future. By the time you use your policy, maybe even non qualified long term care policy benefits will be not taxable. In addition, as we age we tend to be eligible for certain tax breaks that we are not eligible for in our younger days. This may offset any potential tax disadvantage should it come to that, once benefits have begun being paid.
Get Advice From A
Qualified Tax Professional
It may be wise to sit down with a financial planner, or even a tax advisor, if your assets deem it to be necessary. You want to feel comfortable in the choices you make regarding your financial assets and how to best protect them. There may be much better ways to help you reduce your tax burden than by choosing a more demanding type of long term care insurance such as qualified insurance.
Business expenses, deductions for the amount of interest you pay on your mortgage payments and charitable contributions are just the tip of the iceberg in ways to save on your taxes. “Are long term care insurance premiums tax deductible” is a typical first question for the fiscally-minded person; keep asking those questions and you’ll end up with a policy that suits your needs.
To compare long term care plans from top companies then use our free quote finder at the top of the page. Get started finding long term care insurance today!
