Archive for December, 2012

Women to Soon Pay More for Long Term Care Insurance?

December 26, 2012

Genworth Life Insurance Company has announced that it will begin charging women more than men for new long term care insurance.  Other carriers are expected to follow as Genworth leads the industry in market share.  The increased Genworth rates are pending state-by-state-approval and are expected to be effective on new policies that are applied for after about mid-January to late February, 2013.  The higher rates for women will be significant…anticipated to be somewhere between 10% and 40% more.

While at first glance this doesn’t seem fair, there is strong logic to back up the requested increases.  According to Steve Zabel, Genworth’s senior vice president for long term care insurance, “Historically, the claims experience of single female applicants has been worse.”   Single female applicants?  We are talking about higher rates for all women, not only those who are single.  Here goes: Husbands and male partners tend to become sick first.  Women take care of the men, the men die before the women, and the women are ultimately left with no one to take care of them.  Hence more frequent and more expensive long term care claims for women than for men…at least that is the industry thinking.

Data compiled by the American Association for Long Term Care Insurance does show that 65% of all new long term care claims opened in 2011 were for women.  In all care venues (home care, assisted living, nursing home), new claims by women exceeded those by men.  These are significant differences.  Until now, premiums have been the same for men and women.  This is about to change. 

The obvious take-away?  Women who have been thinking about applying for long term care insurance should do so now.  Men…don’t ignore this.  It will impact the women in your lives and by extension, the care you may or may not receive.  By the way, I do not expect to see rates lowered for men…only increased for women.

Disclaimer: Actual policy language, rather than the contents of this eNewsletter always takes precedence.  Long term care insurance policies vary widely from company to company & within the same company.  Raymond Smith, The Long Term Care Specialist, does not give legal or tax advice.  Consult your tax advisor or attorney for these matters.

 

© Raymond Smith, The Long Term Care Specialist, 2012

2013 Tax Update: Deductibility of Long Term Care Insurance Premiums

December 25, 2012

The rules stay the same, but the numbers have changed…actually became a little better.  Three principles remain: 1) Someone who is not a business owner generally CANNOT deduct long term care insurance premiums. 2) A business owner CAN generally deduct at least a portion of premiums for the owner and spouse.  3) An employee having the good fortune of employer-paid long term care insurance does not generally have more taxable income as a result of this benefit.  Exceptions are everywhere.

Lets first look at the individual (or married, filing jointly) taxpayer.  Unless having an exceptionally large amount of deductible medical expenses relative to income, long term care insurance premiums are not deductible.  The bar for deductible unreimbursed medical expenses has been raised from 7.5% of Adjustable Gross Income to 10.0% of AGI  (age 65 & better still has 7.5% AGI until 2016).  An exception is that tax-free withdrawals from Health Savings Accounts (HSAs) may be used to pay long term care insurance premiums.  The HSA withdrawals are limited to the “eligible long term care insurance premium amounts.”  Eligible amounts for 2013 will be listed near the end of this article.  Long term care insurance still cannot be included in employee benefit Cafeteria plans. 

A “regular” or “C” corporation can generally deduct the full amount of long term care insurance premiums paid on behalf of bona-fide employees and their spouses.  This includes owner-employees, but not owners who are not also employees.  The premiums paid by the C-corporation are not then taxable to the employee

Self-employed business owners: Sole proprietors, partners in a partnership, and greater than 2% owners of Sub-chapter S corporations (and their spouses) can generally deduct premiums paid up to the “Eligible long term care insurance premium amount”.

Long term care insurance premiums paid by employers on behalf of NON-BUSINESS OWNER employees (and their spouses) of any entity are generally deductible to the business, and not taxable as income to the employee.

With rare exception, benefits received from tax-qualified long term care insurance policies are tax-free.

Here are the eligible long term care insurance premium amounts for 2013: Age 40 or less, $360.  Age 41-50, $680.  Age 51-60, $1,360.  Age 61-70, $3,640.  Age 71 and older, $4,550.  Note that “age” refers to attained age on the last day of the tax year, which is usually on 12/31.

This article refers only to long term care insurance policies that are “tax-qualified”.  Most long term care policies purchased since 2000, and almost all purchased in the past few years are tax-qualified.  Policies that are tax-qualified say so, usually within the first few pages.  Yet another exception: Some long term care insurance policies issued before 1997 may be treated as tax-qualified even though all of the requirements have not been met.  

To receive a full page (thus legible) copy of the 2013 One Page Tax Summary, simply send an email to the Long Term Care Specialist with “2013 One Page Tax Summary” as the subject.  The Summary will then be return emailed to you as an attachment.  Many of our clients have found this Summary to be helpful for their tax preparers.  

Did it seem as though this article often said “generally”, “with rare exception” and “almost all”?  That is because it did.  Every rule in the Internal Revenue Code has its exceptions.  Long term care insurance is no exception to these exceptions (How can anyone ever understand the tax code?  My hat is off to those wonderful CPAs and tax attorneys who do.)

Disclaimer: Actual policy language, rather than the contents of this eNewsletter always takes precedence.  Long term care insurance policies vary widely from company to company & within the same company.  Raymond Smith, The Long Term Care Specialist, does not give legal or tax advice.  Consult your tax advisor or attorney for these matters.

 

© Raymond Smith, The Long Term Care Specialist, 2012