Updated for 2022-2023 Tax Years

2023 Tax-Qualified Long-Term Care Insurance Limits

Tax-Qualified Long Term Care Insurance policies are advantageous because you typically do not pay taxes on benefit payments received, which can easily exceed hundreds of thousands of dollars. Even cash indemnity plans are exempt from income and capital gains taxes up to certain limits (which are more than generous)

Tax Deductions Are Also Possible

Tax-Qualified Long Term Care Insurance policies are also tax deductible in certain circumstances. These policies state that, “this policy is intended to conform to IRS standards for Tax-Qualified Long Term Care Insurance.”

Tax-Qualified Long Term Care Insurance officially began in 1996 when the HIPAA law was enacted.  Policies with specific language defining benefit payments and consumer protection provisions may offer favored tax treatment.

The IRS has announced an increase in deductibility for 2023 tax year, due to inflation.

The predicted 2023 LTC insurance deductible limits per individual (with 2022 limits in parentheses):

• Aged 41 to 50: $890 ($850 in 2022).

• Aged 51 to 60: $1,790 ($1,690 in 2022).

• Aged 61 to 70: $4,770 ($4,510 in 2022).

• Aged 71 or more years: $5,960 ($5,640 in 2022).

https://www.irs.gov/pub/irs-pdf/p502.pdf

^^ The official IRS regulations regarding Long Term Care Insurance

Tax Qualified plans have many “features” that set them apart from non “TQ” policies, but some notable features that will be included in all policies, hence making comparisons much easier, will be:

• Benefit Triggers

  • Activities of Daily Living: 2 of 6 standard ADLs will trigger benefit consideration.
  • Severe Cognitive Impairment such as Alzheimer’s or Dementia will also trigger consideration.

• Consumer Protections

  • Consumers can set up third-party notification of unintended lapse which will allow a loved one the chance to salvage a non-paid policy before it is canceled.
  • Free Look Period – all policies can be reviewed for 30 days with no recourse if canceled.
  • Contingent Nonforfeiture benefits are included at no cost.

• Policy Features

  • Tax Qualified Long Term Care Insurance policies must include an optional Nonforfeiture Benefit.
  • Inflation protection options must be offered.  We recommend 5% compound inflation protection.

As a consumer, one reassuring thing about considering Tax Qualified Long Term Care Insurance policies is that comparing apples to apples is significantly easier than it otherwise would be since so many of the fundamental aspects of the policies are required to be written the same way.  Not to say that they’re identical, but there are many similarities in key areas.

Having said that, the most important thing when shopping for long-term care insurance is to compare A+ rated companies side-by-side, which is what our service does at no cost.

Downsides of Tax Qualified LTC Policies

One question we are ocasionally asked is, "what are my alternatives to tax-qualified long-term care insurance?"

Well, there are very few if any remaining "no-TQ" policies on the market. The advantages of Tax Qualification outweighed the tax burden of more "generous" policies that may have easier or different triggers.

Bottom line: only consider tax-qualified policies.