Premiums paid for a qualified long-term care insurance contract are a medical expense, but the deductible amount of the premium is limited by the age of the taxpayer at the end of the tax year. The deductible portion of premiums paid increases with the age of the taxpayer. The limit on premiums is for each person.

A qualified long-term care insurance contract is a policy that only provides coverage for qualified long-term care services. To qualify, a contract must meet all of the following requirements:

• It must be guaranteed renewable.
• It cannot provide a cash surrender value of other money that can be paid, assigned, pledged or borrowed.
• It must provide that refunds, other than refunds on the death of the insured or the cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits.
• It must not pay or reimburse expenses that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses.

A taxpayer is also entitled to deduct unreimbursed expenses for qualified long-term services as itemized medical expenses. Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services provided for a chronically ill individual pursuant to a plan of care prescribed by a licensed health care practitioner.

Exclusion from Income

The Internal Revenue Service treats long-term care insurance contracts as accident and health insurance contracts. Therefore, amounts a taxpayer receives are generally excludable from income as amounts received for personal injury or sickness.

There is a limit to the exclusion for payments made on a per diem or other periodic basis. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other periodic basis under a life insurance contract because the insured is chronically ill.

The excludable amount is calculated by subtracting any reimbursement received for the cost of qualified long-term care services from the larger of the cost of the services or a statutory dollar amount.

Copyright 2009 LexisNexis, a division of Reed Elsevier Inc.