Tax-Qualified LTC (7702B)
LTC contracts meeting IRC 7702B requirements - ADL/cognitive triggers, 90-day certification, nonduplication with Medicare, consumer protections - making premiums deductible and benefits tax-free.
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Practice This Concept
Under most long-term care policies, benefits become payable when the insured:
Is unable to perform a specified number of activities of daily living, or has a severe cognitive impairment — Long-term care policies typically trigger benefits on a functional or cognitive basis: the insured must be unable to perform a stated number of activities of daily living (ADLs), commonly two of six, including bathing, dressing, eating, toileting, transferring, and continence, or must have a severe cognitive impairment such as Alzheimer's disease. The ADL requirement ties benefits to genuine care needs rather than to age or diagnosis. This trigger is central to tax-qualified LTC policies under IRC Section 7702B, which requires the same functional standards for favorable tax treatment.
National insurance concept
A tax-qualified long-term care policy under IRC Section 7702B provides which federal tax treatment?
Benefits received are generally excluded from the insured's gross income — A tax-qualified LTC policy under IRC Section 7702B pays benefits that are generally excluded from the insured's gross income, treated similarly to a reimbursement of care costs up to applicable limits. In addition, part of the premiums paid for tax-qualified LTC coverage may qualify as deductible medical expenses, subject to age-based dollar caps. The tax-qualified status requires the policy to meet federal standards, including the ADL and cognitive trigger requirements. California's Partnership policies must be tax-qualified as well, so the federal treatment reinforces the state's consumer protections.
National insurance concept
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