Does my long-term care policy provide any real tax benefits? – II
Last time, we began discussing how unbeknownst to many people, the long-term care policy that they’ve been so ambivalent about securing can actually provide some substantial benefits come tax filing time.
Specifically, we discussed in our last post how even though the Internal Revenue Service hasn’t made the filing process easy, those with long-term care insurance are nevertheless able to deduct the amount paid for premiums, saving themselves hundreds or even thousands of dollars.
We’ll continue this conversation in today’s post.
When it comes to the receipt of any sort of income, most of us are all too aware of the looming presence of the IRS, which we’ll likely need to pay now or pay later.
When it comes to benefits paid out under a long-term care policy, however, they are tax-free, meaning a single penny need not be paid in federal taxes.
Those with high deductible health insurance plans may open tax deductible accounts known as a health savings account to help cover eligible medical expenses.
Under the federal tax rules, payments for long-term care insurance can be made using HSA funds, such that policyholders are essentially being provided with a tax deduction on their premiums.
Last week, we discussed how many people are opting to purchase so-called hybrid policies over traditional long-term care policies. To recap, these are essentially a blend of long-term care insurance and life insurance, which allow policyholders to draw down against the death benefit — up to a limit — to cover the costs of long-term care.
When it comes to tax benefits of these policies, experts indicate that they are not as generous as those extended to traditional long-term care policies. Indeed, given that life insurance premiums cannot be deducted, only the amount of money paid under the long-term care rider can be deducted.
Here’s hoping the foregoing information has proven helpful and helped further illustrate why it’s so important to never rule out long-term care insurance — in all its forms.
Source: U.S. News & World Report, “The tax benefits of long-term care insurance,” Maryalene LaPonsie, Dec. 9, 2016