(Metro Creative Connection)
As the calendar pages continue to turn and I get older, I am very thankful that I bought long-term care insurance over a decade ago.
Most people think about insuring their house or car, but few think about or even know what long-term care insurance means. As people live longer and families become more dispersed and smaller, the potential need for long-term care continues to grow.
Long-term care insurance provides supplemental income to cover caregiving and extended care needs. This care can be either in the home or in a facility such as a nursing home. Medicare and health insurance do not necessarily cover these costs over an extended period. To qualify for Medicaid, you must meet certain income and asset requirements, otherwise you are required to spend down your assets until you meet the requirements.
DTC is different from traditional medical care. It helps a person live as they are now and may not help improve or correct medical problems.
People without long-term care insurance are sometimes forced to sell their home and other assets to pay for the care they need as they age. No one wants to be supported by someone else or sell their nest egg for the care they need, but the reality is that without long-term care insurance, it’s a real possibility.
A qualified long-term care insurance policy is an insurance policy that provides coverage only for qualified long-term care services.
The contract must meet all the requirements listed below.
• Must be guaranteed renewable.
• It should be provided that refunds, other than refunds on death of the insured or total surrender of the contract, and dividends on the contract may be used only to reduce future premiums or increase future benefits.
• In general, must not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except when Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses.
If you’re self-employed, you can deduct part of the cost of your long-term care premium on the first page of your tax return as part of your health insurance deduction. The amount you can deduct is limited to your actual expenses or an amount based on your age at the end of the year according to a table provided by the IRS.
If you are employed and receive a W-2, the deduction for long-term care insurance that you personally purchased is on Schedule A as a medical expense deduction. These policy payments are split between the taxpayer and the spouse. The amount you can deduct on Schedule A is also limited to the greater of your actual expenses or the amount found on an age-based table provided by the IRS. The older a person is, the higher the deductible amount for long-term care coverage. However, the longer you wait, the higher the premium will be for long-term care coverage as well.
When you receive payments under a long-term care insurance policy, those payments are netted against your out-of-pocket expenses to determine your Schedule A medical expense deduction. In other words, payments received under a long-term care insurance policy reduce an amount that you can deduct as a medical expense because these expenses are paid by a third party and are not ultimately paid by the taxpayer.
As an effective way to protect your assets and enjoy some tax benefits, you may want to consider getting a long-term care insurance policy. There are quite a number of factors to consider when evaluating these types of policies. I personally do not want to rely on my children to take care of me if I need extra help due to declining health and ability to take care of myself. Who knows, my kids might want to pay me back for how “evil” I was as a parent!
Paul Pahoreski is the owner of PRP & Associates. He can be reached at 440-974-1040 extension 214 or at [email protected]. Consult your tax advisor for your specific situation for additional information and guidance on these topics.