Long-Term Care Insurance

Long-term health care contracts are relatively new arrangements designed to provide insurance that will meet your health care needs should you become chronically ill or disabled after reaching a specified age, such as 50. As is apparent from their name, long-term care policies greatly expand the time period over which benefits will be paid out, when compared to standard accident and health policies. Another advantage is that, unlike Medicare coverage, long-term care contracts will cover the cost of custodial care, as well as skilled nursing care. These two advantages often make long-term care contracts a preferred way of pre-funding nursing home care for the elderly.

Should you consider long-term care? Although federal government estimates states that 70% of Americans living today will need long-term care before their death and the average cost of "custodial care" (which is not covered by Medicare) can easily exceed $80,000/year at 2012 prices, whether you need to add long-care insurance to your insurance portfolio depends upon a number of factors. Clearly, the more assets that you will have available to provide for your long-term care, the less likely you will need additional insurance. On the other hand, if you have a family history of degenerative disease or long-life with increasing fraility, you may want to spare your family the burden of providing care and prevent all of your assets from going to the "Medicare" spend-down necessary to qualify for care in a public aid facility.

The cost of long-term care premiums increase with your age when the policy is purchased, so it is never too early to start investigating your options. The National Clearinghouse for Long-term Care Insurance, part of the federal Department of Health and Human Services can provide objective information to help you start evaluating your situation.

If certain specified requirements are met, long-term care insurance contracts will generally receive the same income tax treatment as accident and health policies. That means that amounts received under a long-term care insurance contract are excluded as amounts received for personal injuries and sickness. This exclusion is capped at $320 per day on per diem contracts for 2013 (this amount is adjusted annually, if needed, for inflation.)

Company-paid premiums for long-term care can be excludible from income tax for the employee. If you purchase the policy as an individual, rather than through your company, the premiums count as deductible medical expenses within certain limits.

For 2013, the limits are:

• Age 40 or under = $360
• Age 41 to 50 - $680
• Age 51 to 60 - $1,360
• Age 61 to 70 - $3,640
• Age 71 or over - $4,550

Employer-provided long-term care insurance premiums are not excludable from an employee's income if provided through a cafeteria or other flexible spending arrangement. Premiums paid on long-term care contracts by self-employed persons qualify for a full deduction for health insurance expenses.