Updated for 2024-2025 Tax Years

2024 & 2025 Tax-Qualified Long-Term Care Insurance Limits

If you own (or are thinking of purchasing) a Tax-Qualified (TQ) Long-Term Care Insurance policy, there’s good news: benefit payments are generally received tax-free, even when they can amount to hundreds of thousands of dollars. This is one of the many reasons TQ policies have become the industry standard.

Moreover, TQ policies can also be tax-deductible in certain circumstances—an especially valuable perk when planning for long-term care. Thanks to inflation adjustments, the IRS increases allowable deductions on qualified long-term care insurance premiums most years.

Below are the newly announced IRS limits for 2024 and 2025. For more details—such as how your age impacts deductible amounts—please see our dedicated Tax Advantages page.

2024 & 2025 Deductible Premium Limits for TQ Long-Term Care Insurance

The per diem limitation on qualified long-term care benefits for 2025 is $420 per day. (See IRS Revenue Procedure 2024-40.)

How Did Tax-Qualified LTC Insurance Originate?

Tax-Qualified (TQ) policies became official in 1996 with the passage of the Health Insurance Portability and Accountability Act (HIPAA). Under this law:

• Certain standard features—like benefit triggers and consumer protections—are mandated for TQ policies.
• Benefits typically aren’t taxed.
• Premiums may be deductible as medical expenses, subject to IRS rules and age-based limits.

Bottom line: TQ policies offer considerable tax-favored treatment when compared to older or non-qualified LTC policies.

What Makes a Policy “Tax-Qualified”?

To meet TQ standards, policies must include specific consumer protections and follow IRS guidelines regarding benefit triggers:

1. Benefit Triggers

   • Activities of Daily Living (ADLs): Needing assistance with 2 out of 6 standard ADLs (e.g., eating, bathing, dressing) generally qualifies you for benefits.
   • Severe Cognitive Impairment: Alzheimer’s or dementia also triggers benefit eligibility.

2. Consumer Protections

   • Third-Party Notification of Lapse: Allows a relative or friend to be notified if a premium payment is missed, helping avoid unintended policy cancellation.
   • Free-Look Period: You get 30 days to review the policy; return it for a full refund if you’re unsatisfied.
   • Contingent Nonforfeiture: Some built-in protections apply if you can no longer keep up with premiums.

3. Policy Features

   • Optional Nonforfeiture Benefit: Must be offered, so you don’t lose the entire value of your policy if you stop paying premiums.
   • Inflation Protection Options: Must be offered (e.g., 5% compound protection is commonly recommended).

These requirements result in policies that are more consistent across insurers, making it somewhat easier to compare apples to apples when shopping for long-term care insurance.

Tax Deductions: A Real Benefit to TQ LTC

Because premiums on TQ long-term care policies may be treated as medical expenses, they can qualify for deductions (based on the age-specific IRS limits noted above). This can lead to significant savings over the life of the policy—especially for older individuals who benefit from higher deduction thresholds.

Pro Tip: Tax laws and regulations can be complex and vary by state. Always consult a professional tax advisor or attorney for personalized guidance.

For additional details on maximizing your potential deductions—including state-specific tax credits and other LTC financing strategies—please visit our Tax Advantages of Long-Term Care Insurance page.

Downsides of Non–Tax-Qualified LTC Policies

Some people wonder about non–tax-qualified (non-TQ) policies. These are now extremely rare and often come with less-favorable tax treatment and fewer standardized protections. Given the potential tax implications alone, most experts recommend sticking with TQ policies.

Compare Top-Rated LTC Policies for Free

Ultimately, the key step when shopping for long-term care insurance is to compare reputable insurers side-by-side. Let us help you find the best policy for your needs, at the best possible rate:

Compare Side-by-Side LTC Insurance Plans in 3 Minutes

Additional Resources

• IRS Publication 502 – Details on medical expenses, including LTC.
• Medicare.gov ADL Definitions
• Our Company Reviews – Learn about top-rated insurers.
• Inflation Protection Explained

Disclaimer: This article is provided for informational purposes only and does not constitute tax or legal advice. Always consult with a qualified professional for personalized guidance regarding your unique financial situation.