Unfortunately, it’s a very real possibility that you or someone you love may need long term care at some point. Your retirement savings may have to go toward that care, but you will want to ensure that this money is protected. A good way to keep your retirement savings secure could be a long term care (LTC) insurance policy.
How LTC insurance Works
The benefits you receive from an LTC insurance policy are generally counted as daily maximums and range anywhere from $50 to $500. You select the level of benefits that is most apt for your personal needs and get reimbursed that amount. You receive that specific amount each month no matter how many days you get care for that month. LTC policies can also be bought with or without automatic annual inflation adjustments to your benefits. The rate is typically around 3 to 5 percent and may be compounded each year if desired. However, it’s important to know that a compounded adjustment feature at 5 percent is pricier.
Lower benefits equate to lower premiums, but at the same time, long term care can be costly. As a result, it could be wise to not focus too much on cost savings.
Overall, policies that have waiting periods for incurring benefits between 90 and 100 days are the most popular among policyholders. Benefit periods may range from two years to a lifetime worth of coverage. However, most policies carry benefit periods of three, four or five years. On average, people stay in nursing homes for around 2.5 years, but that doesn’t take into account home health care.
When to Sign Up for LTC Insurance
It may be better to sign up for LTC insurance as soon as possible. Premiums are established due to your age and overall health when you enroll. In other words, it can cost you more money to enroll when you’re 65 versus when you’re only 55. You must also be in overall good health when you apply or you will not be accepted no matter what your age. After you have LTC insurance, however, no matter what your health or age, you will keep it as long as you pay your premiums.
Are LTC Insurance Benefits Tax-Free?
LTC insurance benefits are usually tax-free, which means you can get reimbursed for them under your annual tax returns. For this year, the tax-free amount for benefits comes to $370 per day. The cap is adjusted each year for inflation. Whenever you incur benefits throughout the year, the amount is reported to you on a Form 1099-LTC that’s typically received early in the next year.
Can You Deduct LTC Insurance Premiums?
You may be able to deduct LTC insurance premiums as your policy is considered health insurance for tax purposes, which allows them to be itemized as medical expenses. At the same time, note that if your premiums go beyond the age cap, you will only be able to count the capped amount as your expenses. You must also include coverage for your spouse or another dependent family member, if applicable.