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Carla (Full Site) Workman, LTCP
LTC Insurance Advisors
Long Term Care Specialist
Tallahassee, FL
(850) 656-2433 Phone



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Tax Qualified

This section addresses the main differences between the tax qualified (TQ)
and the non-tax qualified policies. Which one is right for you? You can only
make this decision after you look at both of your options.

Because tax qualified policies are now considered the same as accident and
health policies, they may be eligible for tax deductions. They must also
adhere to the standards set forth by HIPAA. Non-tax qualified policies are
currently not eligible for any tax deductions and they do not have to meet
any of the standards that HIPAA requires. Below we will examine the
differences in benefit triggers, tax deduction status, and the taxability of

Benefit Triggers

Tax Qualified Policies:
These policies are required to use the same criteria to determine when
benefits should be paid under a policy. Included in the benefit triggers for
a TQ policy are the following:

1.. The insured is expected to be unable to perform (without "hands-on or
stand-by" assistance) at least 2 of 5 or more activities of daily living
(ADLs). The activities of daily living are: bathing, eating, dressing,
toileting, transferring, and maintaining continence. (California requires
all 6 ADLs to be used.)

2.. Cognitive Impairment: The insured is diagnosed with a severe cognitive
impairment where it is determined they are a threat to themselves or others.

3.. 90-Day Certification: TQ policies require certification of expected
need for care of at least 90 days. NTQ policies do not require this

a.. If you do not initially get the 90-day certification and you end up
needing care longer than 90 days, your health care practitioner can certify
that happened and the insurance company will pay retroactively based on your
elimination period.

b.. If you do not get the 90-day certification and only need care for
say, twenty days, those days would not count towards your deductible.

Non-Tax Qualified Policies:
These policies have no standardized benefit triggers. Therefore, the carrier
can determine how liberal or strict they want their benefit triggers to be.
Non-Tax Qualified benefit triggers can include medical necessity as a
benefit trigger, and can require that the policyholder only needs help with
one activity of daily living.

Tax Deduction Status

Tax Qualified Policies:
The premiums paid for these policies are eligible for both Federal and State
tax deductions. These are discussed in detail in the Federal and State

Non-Tax Qualified Policies:
The premiums paid for these policies currently do not receive any tax

Taxability of Benefits Form 1099-LTC:

All carriers are required to issue Form 1099-LTC to all beneficiaries when
benefits are paid from either a TQ or NTQ policy. According to HIPAA, the
benefits on a TQ policy are definitely not taxable, but there is no mention
or decision relative to the taxation of benefits on a non-tax qualified
policy. Some proponents of NTQ policies are not concerned about the tax
ramifications from a Form 1099-LTC because they think that the cost of the
long-term care can be deducted as a medical expense so it will be a wash.
Unfortunately, this is not true because the instructions for IRS Form 1040,
Schedule A-Itemized Deductions, say: "Caution: Do not include expenses
reimbursed or paid by others." A policyholder may deduct only the costs of
care that were not reimbursed.

Per diem benefits received on a TQ policy are tax free up to $220 for the
year 2003. If you receive per diem benefits above $220, they will be taxed
as income, unless your actual long-term care expenses were also above $220.

Find Out More...
HIPPA The Health Insurance Portability & Accountability Act (HIPAA) of 1996 (also known as the Kennedy-Kassebaum Bill), successfully addressed three items that affect long-term care insurance. Find here for more information...

Federal Legislation It's important to understand that you may qualify for federal deductions with your Long Term Care insurance. Find here to learn more...

State Taxes State Tax Deductions and Credits State Type Descriptions Click here to learn more...