Long-Term Care Insurance Tax Deductions 2025 Planning: What You Need to Know
As America’s senior population grows rapidly—projected to exceed 82 million by 2050—so does the likelihood that you or a loved one should be engaged with long-term care insurance planning. Nearly 70% of adults aged 65 and older will require it, and with costs continuing to climb, planning ahead is critical. Long-term care insurance can help protect your savings and provide peace of mind, with the added bonus of potential tax deductions for premiums. Don’t wait until it’s too late—learn how this could impact your future.
The population of older adults in the United States has been growing steadily in recent years. According to the U.S. Census, the number of Americans who are age 65 and older grew more than 9 percent in just three years, from 2020 to 2023. By 2050, estimates suggest that the country will have more than 82 million seniors.
With this shift in demographics comes a rise in the need for long-term care, all while the costs for this type of care have been escalating. To help alleviate these costs, some people are relying on long-term care insurance.
You may assume that you won’t ever need long-term care services, but data shows that nearly seven in 10 adults aged 65 and over will, in fact, require it at some point in their later years. Although it does add another expense to one’s life, long-term care insurance can be helpful. Plus, keep in mind that you may be able to deduct all or some of your long-term care insurance premium when you file your taxes.
What Is Long-Term Care?
Long-term care (LTC) refers to a range of services designed to meet the medical and nonmedical needs of individuals who cannot perform basic activities of daily living on their own due to chronic illness, disability, or aging. These services can be provided at home, in community-based settings, or in specialized facilities like nursing homes and assisted living centers.
Types of Long-Term Care Services
- Personal Care: Assistance with daily living activities (bathing, dressing, eating).
- Skilled Nursing Care: Medical services provided by licensed professionals.
- Rehabilitative Services: Physical, occupational, or speech therapy.
- Adult Day Services: Daytime care and supervision in a community setting.
These long-term care services go beyond standard medical care or treatment. As a result, health insurance and Medicare typically do not cover the non-medical aspects of long-term care that individuals who are declining regularly require. Therefore, to pay for the care that they need, these individuals may pay out of pocket, apply for means-tested government benefits or seek coverage under their long-term care insurance (LTCI) policy.
What Is Long-Term Care Insurance?
Long-term care insurance helps cover the costs of long-term care services. LTCI policies vary, but generally they cover a range of care options, including the ones listed above. The costs and benefits of LTCI policies vary as well. Some common features to consider include:
- Elimination Period: The waiting period before benefits begin, usually ranging from 30 to 90 days.
- Benefit Period: The duration for which benefits will be paid, often two to five years, or for a lifetime.
- Daily Benefit Limit: The maximum amount the policy will pay per day for care.
- Inflation Protection: An optional feature that adjusts benefits over time to keep pace with rising cost of care.
Why Consider Long-Term Care Coverage?
Having a policy offers a variety of upsides. At a minimum – a policy can provide you “peace of mind” – like any insurance product – you may be able to sleep better knowing that you have invested in a policy. LTCI policy offers you a means to help you afford the necessary services if and when you need long-term care. And for most people, being able to pay for these services means that they will not “burden” their loved ones, family and friends, with the caregiving they may need.
Additionally, LTCI plans may offer you these other benefits:
- Financial Protection: LTC services can be expensive, and LTCI helps prevent financial strain. As of 2023, the median cost of a semi-private room in a nursing home in the DC metropolitan area is $12,623 a month.
- Preserving Savings: Coverage can help safeguard your retirement savings and assets.
- Leave an Inheritance: Similarly – if you want someone to inherit your wealth, then LTCI can ensure that you do not deplete your assets to pay for your care.
- Flexibility: LTCI policies often provide a range of care options, allowing policyholders to choose the care setting that best suits their needs.
- Tax Benefits: Deductions can make premiums more affordable, particularly for older individuals and those with higher medical expenses.
Tax Deductibility of Long-Term Care Tax Insurance Deductions for 2024
The Internal Revenue Service (IRS) allows taxpayers to deduct a portion of qualified long-term care insurance premiums as a medical expense, provided these expenses exceed 7.5 percent of their adjusted gross income. (What constitutes a qualified long-term care insurance policy is discussed further below.) The tax-deductible limits vary by age group. According to the American Association for Long-Term Care Insurance, the deductible per-individual limits for 2024 are as follows:
| Attained Age Before the Close of 2024 | Maximum Deduction for 2024 |
|---|---|
| Age 40 or younger | $480 (up from $470) |
| Age 40 to 50 | $900 (up from $870) |
| Age 50 to 60 | $1,800 (up from $1,760) |
| Age 60 to 70 | $4,810 (up from $4,710) |
| Over age 70 | $6,020 (up from $5,880) |
Not All Policies Are Deductible
Not all long-term care insurance policies are tax-deductible. To qualify for deductions, the policy must meet the criteria of a “qualified long-term care insurance contract” as defined by Section 7702B of the Internal Revenue Code. Here’s what policyholders should know to determine if their policy qualifies:
Policy Documentation
The insurance policy should explicitly state that it is a “qualified long-term care insurance contract” as defined by Section 7702B. This designation is typically found in the policy summary or introductory section. If the policy does not include this language, it may not be eligible for tax deductions.
Consumer Protections Required for Qualified Plans
To meet the criteria for a qualified plan, the policy must include specific consumer protections designed to safeguard the interests of policyholders:
- Reinstatement Provision
Qualified policies must offer a reinstatement option if the policy lapses due to non-payment of premiums, provided the policyholder can demonstrate cognitive impairment or loss of functional capacity. This protects individuals who may miss payments due to declining health. - Third-Party Notification
Policies must allow the designation of a third party to receive notification if the policy is at risk of lapsing due to unpaid premiums. This ensures that a trusted person, such as a family member, can intervene and prevent the loss of coverage. - Inflation Protection
Qualified plans must offer inflation protection as an optional benefit. This ensures the coverage amount keeps pace with the rising cost of long-term care, helping policyholders maintain adequate protection over time. - Nonforfeiture Benefit
These policies must include the option of a nonforfeiture benefit, which ensures that policyholders who stop paying premiums after a certain period retain some level of coverage, often in the form of reduced benefits. - Prohibition on Cash Value or Loans
Qualified plans cannot include cash surrender value or allow policyholders to borrow against the policy. This ensures that the policy is strictly focused on long-term care needs.
How I Can Help You as an Elder Law Attorney
As an elder law attorney, I guide individuals and families through complex decisions about long-term care planning, including evaluating the value of continuing to pay expensive long-term care insurance premiums. My role is to demystify the fine print of your policy, ensuring you fully understand its terms and how it fits into your overall financial and estate plan. Here’s how I can assist you:
- Personalized Advice: I assess your unique financial situation, health care needs, and long-term goals to help determine whether maintaining your long-term care insurance is a sound investment or if alternative strategies may be more beneficial.
- Policy Review and Clarity: Long-term care insurance policies are often full of complex language, exclusions, and conditions. I help you decode these terms, so you know exactly what is covered, under what circumstances, and how to avoid lapses in coverage.
- Integration With Your Estate Plan: Your long-term care plan should complement your overall estate planning strategy. I ensure that your insurance aligns with your broader goals, protecting your assets while preserving the legacy you wish to leave for your loved ones.
- Tax Guidance: I provide insights into the tax implications of your policy, including potential deductions for long-term care insurance premiums, helping you maximize your financial benefits.
- Future Flexibility: Life circumstances change, and so should your planning. I help you create a flexible long-term care strategy that adapts as your needs and financial situation evolve.
- Confidence and Peace of Mind: Making decisions about long-term care insurance and planning can be overwhelming. By working with me, you can feel confident that you are making informed choices that secure your future and protect your family’s interests.
By partnering with me, you’ll gain a clear understanding of your options, including whether to maintain or adjust your long-term care insurance policy, and how to ensure it fits into a holistic plan for your future. Let me help you navigate these important decisions and safeguard your assets while meeting your long-term care needs.