Federal Tax Deductions Could Make Long Term Care (LTC) Policies More Affordable

The Internal Revenue Service released this month long-term care premium deductions for 2009.

Policies issued on or after January 1, 1997, will qualify for the deduction if they adhere to regulations established by the National Association of Insurance Commissioners. Among the requirements are that the policy must offer the consumer the options of”inflation” and”nonforfeiture” protection, although the consumer can choose not to purchase these features. Policies purchased before January 1, 1997, will be grandfathered and treated as”qualified” as long as they have been approved by the insurance commissioner of the state in which they are sold
“Qualified” premiums are tax deductible as long as they exceed 7.5 percent of adjusted gross income, along with other unreimbursed medical expenses. (If you are self-employed, you may deduct the entire premium.) To be qualified, an LTC policy must have been purchased before 1997 and meet National Association of Insurance Commissioners’ regulations. Policies purchased before 1997 may still qualify if they have been approved by the insurance commissioner of the state where they were sold.

If you are between 50 and 60 years old, for 2009 you can deduct a maximum of $1,190. That’s likely less than half of what you pay yearly for coverage. Nevertheless, the deduction could make the policy more affordable in the long run. [NOTE- We are not accountants or tax advisers. Check with your own personal tax professional before relying on the deductibility of costs discussed herein.]

You may have noticed that state governments are now creating public-private partnerships with LTC providers to educate people about planning for long-term care, and to encourage them to buy private insurance. This is our governments attempt to shift the burden from government, whose resources are rapidly diminishing, to the individual. The federal government could do its part by making the tax deduction a more in line with the actual cost of the insurance in order to encourage the middle class baby boomers to purchase LTC insurance. That would make the coming cost-shift from public to private senior-care a little less burdensome.

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