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Tax Qualified Long-Term Insurance Policy

Congress passed legislation effective in 1997, which established the tax treatment of premiums paid and the benefits paid by long term care insurance policies that met few sure federal standards. This legislation is known as the Health Insurance Portability and Accountability Act or HIPAA.

Long-term Insurance policies, which use the federal standards to pay benefits, are known as “Federally Tax Qualified”. Some or all of the insurance premiums for these federally tax qualified policies might be deductible as a medical expense on your federal and California health care income tax returns (depending on your age and the amount of yearly insurance premium). In additional, the Long term insurance benefit payments are expelled from your income. Employers who give tax-qualified long term insurance policies for their employees might deduct the premiums they pay as they do for other accident and health insurance policies. This employer contribution will not be considered as income to the employees.

Policies sold as federally tax qualified long term insurance use a standard of eligibility for benefits, which might be stricter than the standards established in California for non-qualified insurance policies. It might be easier to qualify for benefits from non-tax qualified insurance policies, which uses the standards established by California. However, the premiums for these non-tax qualified insurance policies cannot be deducted and federal law is unclear on the tax treatment of the benefits paid.

If you have questions about the tax qualify status of a insurance policy you own or one you are considering buying, your qualified long-term care policy agent could advise you. If you have specific questions pertaining to how the purchase of tax qualified long-term care policy would impact the deductions you take or the taxes you pay, you can talk to your tax advisor to see how it would affect your individual taxes.

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