Americans are living longer. Given the significant costs involved, the possibility that long-term care might be needed one day is a financial planning concern.
Long-term care insurance is designed to cover the cost of care for individuals who need assistance with “activities of daily living,” such as bathing and dressing. Medicare and supplementary health insurance policies generally do not cover long-term care services. And Medicaid coverage can only be accessed if an individual meets strict state and federal income and asset guidelines.
Some employers provide long-term care insurance as an employee benefit. Long-term care policies are also available to the public. Before making a decision to purchase a particular policy, individuals should compare pricing, costs, and features and investigate the insurer’s financial health.
Long-term care policies generally fall into two categories: indemnity and reimbursement. An indemnity-based policy pays a per diem or dollar amount of benefits for an insured’s long-term care expenses, regardless of the insured’s actual expenditures. For 2016, benefits of up to $340 per day (or the actual cost of long-term care services, if greater) are income-tax free.
A reimbursement policy, on the other hand, does not pay a set dollar amount. Instead, the insurer pays for long-term care expenses incurred up to the policy’s maximum benefit. Policy benefits are income-tax free.
Premiums paid for qualified long-term care contracts are deductible as itemized medical expenses, up to certain annual limits. Self-employed individuals may deduct the premiums as a business expense.
If you would like to discuss long-term care insurance or need help choosing a policy, please contact us.