Using Long Term Care Policies

by : Peter Kenny

Long term care policies can be confusing to many consumers. There are tax qualified policies and there are non-tax qualified polices, and knowing the difference between the two is important for anyone considering the purchase of a long term care insurance policy.

The scope of this subject is too vast for one article but we will attempt to cover the basics. Anyone interested in a long term care policy should see a professional insurance agent who can answer the more specific questions that you may have.

The non-tax qualified policies have been around for decades. A distinguishing feature of these types of policies is that they often contain a trigger. This trigger is often termed by the phrase medical necessity. What this means to the consumer is that the insured person's own doctor must state that the person needs the care for medical reasons. In some cases, the doctor may have to work in tandem with another medical entity provided by the insurance company. Once this trigger is set, the company will usually pay the benefit. These benefits are taxable.

The other type of long term care policy is known as tax qualified. While these policies usually do not have the "medical necessity" trigger as part of their terms they do often require specific conditions to be met. For example, they may require that a person need care for at least ninety days or perhaps longer. They may also impose other conditions such as the person must not be able to perform certain daily activities (dressing, bathing, feeding oneself) without assistance. There can be other conditions as well, and the contract will spell those out for you, which is why it is very important to read carefully before signing.

Benefits for this type of policy are non-taxable, which may be one reason that these policies are being sold less often now than they were before. Many people need the tax deductions which these policies do not allow.

It must be noted that the tax issues with these types of policies can be more complex than the issue of deductions alone. For this reason, it is advisable to get reliable and current advice on both tax-qualified policies and non-tax-qualified policies. You may discover that the benefit triggers on a good non-tax-qualified policy are better.

You should also be aware of the fact that by law, tax-qualified policies carry restrictions on when the policy holder can receive benefits. This is certainly something you should consider before buying a policy.

Consumers should also know that once the policy is purchased, the terms cannot be changed by the insurance company. It is also important to know that for policies that cover one individual the policy is guaranteed renewable for life, which means that it can never be canceled by the insurance company as long as the premiums are paid on time and in full.

Long term care benefits are often paid on a reimbursement basis which can mean money out of your pocket first, which is then paid back to you. For some consumers, this can be somewhat financially challenging.