Have you heard of non-tax qualified long-term care insurance? Unless you are an "experienced" LTC Insurance seller you probably haven't. That's because way back in the 90s when HIPAA (Health Insurance Portability and Accountability Act) was passed it also clarified the tax treatment of LTC Insurance (Section 7702B) - doing things like making the benefit triggers for claims standardized and claims typically received tax-free.
Despite the favorable tax treatment, some agents thought that tax-free benefits and deductions of "TQ" LTC weren't worth the tradeoff- which in many cases was a "medically necessary" benefit trigger of some non-tax qualified policies. Having a doctor say someone needed benefits left open a huge opportunity for claim abuse and carriers who decided to focus on non-TQ LTC plans suffered and eventually left the business.
The reason I mention this is because is it helpful to have similar tax-treatment for LTC benefits allowing for easier comparisons of products by consumers. Tax-Qualified LTC Insurance (i.e. 7702B treatment) can be part of Health Insurance (Traditional LTC), Life Insurance (either Hybrid or a Rider) or an annuity (Hybrid Life/LTC).
Yes, there are other products that can help pay for care, such as short-term care policies or Life Insurance with Chronic Care Riders acceleration riders. But to call it "LTC Insurance" it's got to have the tax-qualified benefit.
You can classify LTC Insurance in five types of products. Since all these types of products cover care at home or facilities with the same benefit triggers, selecting which type of product is just a matter of looking at which features are most important to the client and the best way to fund a plan.
Here is an example below of current products as of 2025 (subject to state availability) and how the different plans work:
|
Product Type |
Traditional LTC |
Linked Life + LTC |
Performance Life + LTC |
Annuity + LTC |
Life + LTC Rider |
|
Example Carrier |
Mutual of Omaha |
Nationwide |
John Hancock |
Global Atlantic |
Securian Financial |
|
Product Name |
Secure Solution |
CareMatters |
LifeCare |
ForeCare |
Eclipse Protector II |
|
Chassis |
Health Insurance |
Life Insurance |
Indexed Universal Life |
Fixed Annuity |
Indexed Universal Life |
|
Premiums |
Annual premiums |
Single Pay up to Pay to 100. Guaranteed premiums |
Single Pay, 5-Pay, 10-Pay, 15-Pay Guaranteed Premiums |
Single Premium |
Annual Premiums |
|
7702b Tax Treatment for tax-free benefits |
Yes |
Yes |
Yes |
Yes |
Yes |
|
LTC Benefits |
Reimbursement for Home and Facility Care. |
Cash Benefit through Acceleration of Benefits and Extension of Benefit Rider. |
Reimbursement or Cash Benefit through Acceleration of Benefits and Extension of Benefits |
Reimbursement up to 2 or 3 times initial premium |
Acceleration of Death Benefit paid over 2, 4 or 6 years |
|
Death Benefit |
Return of Premium upon death Optional |
Yes, does not increase over time |
Yes, will increase over time with cash value |
Remaining policy value gain taxable to heirs |
Can be level or increasing |
|
Cash Value |
None |
Yes |
Yes, designed to increase over time with Index Performance |
Yes, increased at fixed interest rate |
Yes, increased based on index performance |
|
Automatic Inflation protection of LTC Benefits |
Optional, typically 3% compound |
Optional, typically 3% compound |
LTC Benefit will grow at varying amounts due to performance of index |
LTC Pool will grow with account value |
No, LTC Pool will be paid from Death Benefit |
All of these products offer tax qualified LTC Insurance, but some offer more than just LTC - such as investment growth and life benefits.
Here are some considerations and questions to ask when looking at these product types:
|
Questions to Ask |
Type of product to consider |
|
Is the primary need LTC coverage and death benefit and cash values aren't as important? |
-Traditional LTC -Linked Life + LTC |
|
Is the client younger with Life Insurance, retirement accumulation and LTC needs? |
-Performance LTC products |
|
Is the primary need Life Insurance but LTC also important? |
Life + LTC Rider |
|
Is the client interested in a 1035 exchange from a non-qualified annuity to fund tax-free LTC Benefits? |
Annuity + LTC |
|
Are premiums being paid by a business for tax deductibility? |
-Traditional LTC -Linked Life + LTC |
These are just some considerations when making a recommendation. Be open minded to different creative ways to help pay for care.