Long-term care insurance
From Wikicpa
Long-term care insurance has many considerations when evaluating this product.
Contents |
Types of
Generally long-term insurance policies are either indemnity policies or expense-incurred policies.
- Indemnity policies offer a fixed benefit regardless of expenses incurred. Under these policies, the insured is paid amount for each day they receive long-term care.
- Under the expense-incurred type of policy, the insured is reimbursed for actual long-term care expenses up to a fixed dollar amount.
Long-term care policies usually limit benefits to a maximum dollar figure or a maximum number of days. Such policies can also have separate benefit limits for the various types of care provided. For instance, a policy may offer $75 per day for up to sixty months of coverage for nursing home care while offering only up to $50 per day up to sixty months of assisted living and home health coverage.
Consideration should be given to both the amount of daily or monthly benefit, and the overall length of coverage. Insurance companies offer policies that provide benefits for a duration of increments of anywhere from one to six years, or for lifetime. Naturally, a longer period coverage period carries a higher premium in comparison to a policy with shorter coverage.
Elimination period
The elimination (or waiting period) is the number of days that the beneficiary must receive long-term care before benefits are paid under the policy. While in the elimination period, the beneficiary must pay for his care at his own cost. These elimination periods typically range from approximately 20 to 100 days. Generally, the longer elimination period, the lower the premium.
Age of beneficiary
The cost of long-term care policies generally rise with age. An individual in their 50's can expect to pay a premium from one-third to one-half then that of an individual in their 60's.
While purchasing a policy when younger will result in lower premium's it will also result in more out of pocket costs for longer number of years. On the flip side, waiting too long can result in steep premiums.
Tax issues
Generally premiums paid for long-term care insurance are considered qualified medical expenses for income tax purposes. An individual will report this deduction on their Schedule A itemized deductions form subject to the normal limitations.
Not all long-term insurance qualifies as deductible. The premium is deductible if the policy meets the following criteria:
- Coverage is limited to qualified long-term care services, as defined under deductible long-term care services.
- The policy does not reimburse expenses covered under Medicare, except when Medicare is a secondary payer, or the contract makes per diem or other periodic payments without regard to expenses.
- It is guaranteed renewable.
- It does not have a cash surrender value or provide for a value that can be pledged as collateral or borrowed. This does not apply to refunds upon death of the insured or complete cancellation of the contract. Such refunds are taxable to the extent the premiums were previously deducted.
- It provides for any refunds of premiums or dividends to he applied to future premiums or an increase in benefits
- It meets certain consumer protection provisions
Deductible premium limitations:
| Year | Age 40 or younger | Age 41 to 50 | Age 51 to 60 | Age 61 to 70 | Age 71 or older |
|---|---|---|---|---|---|
| 2006 | $280 | $530 | $1,060 | $2,830 | $3,530 |
| 2005 | $270 | $510 | $1,020 | $2,720 | $3,400 |
