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Long-term care insurance can be an important part of planning for the twilight of your life. Despite everyone hoping they’ll be healthy and active until the end of their days, most of us end up needing a bit of help getting through the day when we get older. Like most medical care in the United States, this can end up being very expensive.
Many people invest in long-term care insurance early so that they will have an easier time paying for the help they need when they need it. This brings up many questions, but one that you may not consider right away is if there are any tax implications to buying long-term care insurance. In short: yes – under certain conditions. Long-term care insurance premiums can have a positive impact on your taxes. We’ll explain exactly how it works below.
For more help with long-term care insurance, taxes or any other financial considerations, consider working with a financial advisor.
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Long-term care insurance works like any other insurance product — you enter into a contract with an insurance company, pay premiums and then have access to funds to pay for long-term care later in life. The amount you pay in premiums and how long you pay will be dependent on the individual contract you choose to enter.
Long-term care insurance can be used to pay for various services, including:
Some long-term care plans are also coupled with a life insurance component, meaning that if you don’t use all of the money you’ve put into the plan — say because you end up dying earlier than you figured or you’re just one of the lucky few who remains relatively healthy until shortly before death — your family gets a payment after you’ve died.
There are other ways to plan for long-term care payment, from investing to annuities to simply saving, but long-term care insurance is one of the more cost-effective ways of making it easier to pay for the care you or a loved one will need in old age.
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Long-term care insurance premiums are indeed tax deductible, though there some rules you’ll need to know before you rush off to file your return. First, in order to be eligible for a tax deduction, the premiums you pay must exceed 7.5% of your adjusted gross income. For self-employed people the rules are a bit different; the premium can be taken as a tax deduction as long as they’ve made a net profit.
Second, there is a limit to how much you can deduct based on age. These are the limits for 2022:
In order to qualify for a tax deduction, the policy must meet certain regulations set by the National Association of Insurance Commissioners. Make sure to check with your insurance broker to see that your plan does.
Long-term care insurance is a contact you enter into with an insurance company. You pay premiums for a set period of time, and in exchange you get money later in life to pay for long-term care services. The premiums you pay are tax deductible, but certain conditions must be met and there is a limit to the amount of money you can deduct each year.
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Ben Geier, CEPF®Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, Mic.com and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society for Advancing Business Editing and Writing. When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
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