In the United States, both tax qualified (TQ) and non-tax qualified (NTQ) long-term care insurance policies are available.
Tax qualified long-term care insurance (TQ LTCI)
This is the most common type of long-term care insurance policy in the U.S. Benefits from a tax qualified long-term care insurance are non-taxable.
For this policy to pay out, at least one of these conditions must be fulfilled:
- The insured must be expected to require care for at least 90 days and be unable to perform two or more activities of daily living without substantial assistance (hands on or standby). Examples of daily living activities are personal hygiene, toileting, eating, dressing, and moving around.
- The insured must be expected to require substantial assistance for at least 90 days due to a severe cognitive impairment.
In both cases, a medical doctor must provide a plan of care.
Non-tax qualified long-term care insurance (NTQ LTCI)
Nowadays, non-tax qualified long-term care insurance is much more rare than its tax qualified counterpart. The Treasury Department has not clarified the status of benefits received from this type of policy which means that their taxability is unclear.
This type of LTCI policy is sometimes referred to as traditional long-term care insurance, since it is older than the tax qualified option.
In most cases, medical necessity, as determined by a medical doctor, is the trigger for receiving benefits from NTQ LTCI policy – there is no list of detailed requirements that must be fulfilled. This means that the policy is more flexible than the TQ LTCI policy and may pay out even in situations where a TQ LTCI policy would not.
Other facts about LTCI in the United States
- In the United States, the insurance company is not allowed to cancel your LTCI policy for health reasons. It can be canceled for non-payment.
- Benefits from an LTCI is usually paid as a reimbursement of expenses that you have already paid. There are a few insurers that offer per-diem benefits.
- LTCI policies sold in the United States are usually only eligible for care within the continental United States, but there are exceptions.