Long Term Care coverage premiums are based on your age at the time you apply for coverage, so the premium you would pay goes up with each birthday. Once you’ve purchased Long Term Care insurance, the insurer can only raise your premium on a class basis — not because of your age or health.

The graph below shows how a typical policy gets more expensive based on the age of the applicant.

There are five major reasons why people buy Long Term Care insurance:(1)

• To maintain their independence so they won't have to rely on family memebers.
• To protect their assets against the high cost of long term care and to preserve their children's inheritance.

Long Term Care insurance premiums are based on your age at the time you apply for coverage, so the premium you would pay goes up with each birthday. Once you’ve purchased Long Term Care insurance, the insurer can only raise your premium on a class basis — not because of your age or health.

While there are many competitive Long Term Care insurance products available today, not all products are equal. Before you buy a Long Term Care policy be sure you have carefully considered what you want out of the product. Most importantly, make sure that you work with an insurance company you trust and an agent who understands Long Term Care insurance.

Because it is not uncommon for an individual to purchase a policy 20 or 30 years before they expect to use their benefits, Long Term Care insurance companies usually provide clients the option to purchase an additional feature that will enable benefits to increase periodically by a specified percentage while the policy is in force. The reason for this is simple — the costs of Long Term Care services, like any other good or service, increase over time.

Inflation protection features typically use one of the following methods:

There are two types of Long Term Care plans:

• Non-Tax Qualified
• Tax Qualified

There are limited rules for non-tax qualified plans and insurance companies are not consistent with each other. The rules of tax qualified policies are spelled out by the Internal Revenue Code and administrated by the IRS. The method of qualifying for benefits with a tax qualified policy is as follows.

The Health Insurance Portability and Accountability Act of 1996 (Kennedy-Kassebaum) established tax-qualified Long Term Care insurance plans and defined the rules regarding taxation of benefits and deductibility of premiums.

Taxation of Long Term Care Insurance Benefits

Benefits received under a tax-qualified Long Term Care plan are generally not taxable as income. While federal tax issues are still unclear in certain areas, some states have been proactive in clearly defining what Long Term Care benefits are taxable and what are not.