The IRS Increases Deduction Limits for Long Term Care Insurance

A couple with tax-qualified long-term care insurance coverage could enjoy a maximum $9,500 tax deduction in 2015. The potential tax deduction increases to $9,740 in 2016 according to a just-released IRS revenue procedure. “The potential tax deductibility of tax-qualified long-term care insurance costs is one of the most overlooked benefits, especially for older retired Americans,” states Jesse Slome, director of the American Association for Long-Term Care Insurance (AALTCI).

The IRS permits deductions for long-term care insurance policies that meet certain eligibility standards. Life insurance policies that offer a long-term care benefit are generally not eligible for a tax deduction. The allowable maximum deduction is based on the policyholder’s age before the end of the taxable year. A couple ages 64 and 66 could be eligible to deduct $3,800 each from their 2015 taxes. The deduction may be possible even if they paid for the policy now before the end of the year.

For 2016, the IRS approved a 2.5% increase. “This is a positive indication of the government’s commitment to encourage more individuals to do some planning. The government recently announced that 60 million people on Social Security will not receive any cost-of-living increase in their 2016 benefits,” he said. Tax-deductible limits for long term care insurance premiums vary by age. The 2015 limit for someone age 55 is $1,430 in 2015 (increasing to $1,460 in 2016).

Slome notes, “You likely will not qualify for a tax deduction while you are still working but you could benefit when you are retired. After retirement, your income is low; the age-based tax deductible maximum limit for long term care insurance is high; and your ability to deduct costs is more likely and much more valuable.”
Slome contends that few individuals are aware of the tax deductibility of long-term care insurance premiums, “We find most people are completely unaware of the opportunity and rules that apply for individuals and self-employed individuals.”

Certain owners of businesses are able to take advantage of special rules that apply to tax qualified long-term care insurance. A small business, established as a C-corporation may be able to deduct the full cost of long term care insurance premiums, even if the cost is above the stated yearly tax limits. Plus, the company can designate who is covered even when the employer pays the full cost.

While deductions may not apply for individuals who are still working, they often can be taken during retirement when income stops and medical expenses often occur. The 2015 and 2016 deductible limits under Section 213(d)(10) for eligible long-term care premiums includable in the term ‘medical care’ are as follows

Long Term Care Claims Reveal Popularity of Home Care

Eight million Americans have purchased long-term care insurance and an increased number are now starting to claim benefits, according to a report by American Association for Long-Term Care Insurance (AALTCI). Most people mistakenly associate LTC with skilled nursing home care, but 51% of all newly opened claims begin with home care. Good coverage can cost about $100-a-month for a 55-year-old healthy male. That’s for roughly $160,000 of benefits, which covers quite a bit of care. Add a flexible inflation growth option and your benefits grow over time,” explains Jesse Slome, director of (AALTCI).

“In 2014 we paid $105 million in claim benefits, a 12% increase over the prior year…This protection is best purchased in your 50s and 60s when you are still able to meet the health qualifications and costs for coverage are lower,” says Bill Naylon, president of MedAmerica Insurance Company.

According to AALTCI, roughly two-thirds of all beneficiaries are women, and 54% of new LTC insurance applicants are 55 to 64. Most insurers charge higher rates for single women, but offer discounts for couples or partners who apply for coverage. While most new claims begin for policyholders who are 70 or older, nearly 9% of claims begin before age 70. The leading causes for home care claims are stroke, Alzheimer’s, arthritis, cancer and injury

LTC Price Index

Costs for long-term care insurance have risen slightly for couples, and increased more significantly for single women, but have actually decreased for men according to a 2014 report by the American Association for Long-Term Care Insurance (AALTCI). A 55-year-old single man can expect to pay $925-per-year for $164,000 of long-term care insurance benefits according to the AALTCI report. He’ll pay $1,765 for coverage that increases the benefit pool to $365,000 at age 85, a 14.5% decline from last year’s average.

Jesse Slome, director of the national trade group said, “We advocate a good, better, best approach to long-term care planning for those in their 50s and 60s. Good coverage provides $164,000 of available benefits for each spouse. Better coverage includes an option to add future coverage. The Best option, also the most costly, includes an automatic inflation growth feature.” Today’s average cost is $3,840-per-year for best coverage for a 60-year-old couple each purchasing $164,000 of immediate coverage, growing to a combined benefit pool of $730,000 ($365,000 each) at age 85. “That’s a three percent increase from the 2012 average ($3,725) and 4.8% higher than 2012 ($3,663),” Slome said.

Single women face the greatest cost increase compared to last year. Slome explains, “Last year, leading insurers began charging women higher premiums. Women accounted for two-thirds of the $6.6 billion in long-term care insurance claim benefits paid out.” A 55-year-old single woman would pay an average of $1,225-per-year for the same level of benefits available to a single man for $925 according to AALTCI. The typical single woman will pay an average of 12% more than in 2013. The Association study continues to reveal a significant spread between rates charged by insurers. “No one insurance company is always the least or the most expensive. One insurer will literally charge more than double for virtually the same level of benefits,” Slome notes. The AALTCI study reported differences that ranged from 31% to as much as 114%. For more information, visit AALTCI.org.

Long Term Care Insurance Options For Those With Existing Health Conditions

An increasing number of consumers are exploring long term care insurance options that accept people with existing health conditions including diabetes, cancer, Parkinson’s, Multiple Sclerosis and even osteoporosis with breaks and fractures. “There are millions of Americans who will not health qualify for long term care insurance and each year insurers turn down a percentage of applicants who apply. As a result we are seeing increased interest in innovative products that can address some or all of an individual’s long term care risk,” explains Jesse Slome, director of the American Association for Long Term Care Insurance. According to the Association, 25% of long term care insurance applications from people 60 to 69 were declined in 2012. For applicants from 70 to 79, the decline rate grew to 44% last year, AALTCI reports. Contrary to what many consumers believe, long term care insurance was not affected by the Affordable Care Act (Obamacare). People must health qualify in order to get coverage, Slome notes. For more information, visit http://www.aaltci.org

Home Care Accounts For Half of New LTC Claims

As of December 31, 2012, 264,000 people were getting long-term care insurance benefit payments, according to a report by the American Association for Long Term Care Insurance (AALTCI). Last year, insurers paid $6.6 billion in benefits to people needing care at home, in assisted living communities, and in skilled nursing facilities, says Jesse Slome, director of AALTCI.

According to the Association, leading causes for long-term care insurance claims include Alzheimer’s disease, stroke, arthritis, and cancer. Female policyholders account for roughly two-thirds of all long-term care insurance claims and benefit dollars. Home care accounts for half of all newly opened individual insurance claims. For more information, visit www.aaltci.org.

Last Updated 05/05/2021

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