The end of the year is in sight, and tax deductions are certainly on your clients’ minds. As a professional insurance agent, one of the most important conversations to have with clients revolves around not just the benefits of long-term care insurance (LTCI) but also the potential tax advantages it can provide. Understanding how LTCI premiums can impact taxes helps clients make informed decisions about their financial planning.

Read More: How Affordable is Long-Term Care Insurance?

Understanding Tax Deductibility of LTCI Premiums Paid by an Individual

Long-term care insurance premiums may be tax-deductible as a medical expense, provided certain conditions are met. However, these deductions are subject to limitations based on:

• Their Age: The IRS sets annual limits on the amount of LTCI premiums that can be included as deductible medical expenses. These limits increase with age, reflecting the higher premiums typically faced by older individuals.

• The 7.5% Threshold: LTCI premiums qualify as deductible only if the total medical expenses (including LTCI premiums) exceed 7.5% of the taxpayer’s adjusted gross income (AGI).

Self-Employed Individuals and LTCI

For self-employed clients, the tax rules are even more favorable. They can deduct eligible LTCI premiums as part of their self-employed health insurance deduction. This deduction is available regardless of whether their total medical expenses exceed the 7.5% AGI threshold, provided they show a net profit for the year.

C-Corporation or Entity with a 501 Trust

Shareholders (owners) who are also W-2 employees are treated for LTCI as any other employee. All premiums paid for shareholders/employees, their spouses, and tax dependents are deductible, and no age-based Eligible Premium limits apply. There is no requirement that long-term care insurance be provided on a non-discriminatory basis. Premiums paid for shareholders who are not employees are treated as a dividend—taxable to both the corporation and the shareholder.

Employer-Paid LTCI Policies

Employers who offer LTCI as part of their employee benefits package can deduct the cost of premiums they pay. For employees, these premiums are typically not included as taxable income, making it a win-win situation for both parties. In addition, the employer can also deduct the long-term care insurance premium paid for a spouse or other tax dependent of the employee. There is no limit to the amount of premium an employer can pay and deduct. This applies to ANY business entity as long as the employer is paying for a non-owner employee.

Health Savings Account (HSA)

LTCI premiums are an acceptable, tax-free, healthcare expense from an HSA but only up to the age-based Eligible Premium limit and only for tax-qualified policies.

Medical Savings Account (Archer MSA)

LTCI premiums are an acceptable expenditure.

Partnership Policies and State Incentives

Clients who invest in qualified long-term care partnership policies may also benefit from Medicaid asset protection in the future, along with possible state-specific tax credits or deductions. Many states offer tax incentives for purchasing LTCI, which can further enhance its affordability.

Download a copy of our LTCI Tax Breaks and Incentives Guide.

By educating clients about the potential tax deductions for long-term care insurance, you help them see its value not just as protection for their future care needs, but also as a smart financial planning tool. These tax advantages can make LTCI more affordable, especially for older clients or those planning for retirement. Your role as an agent is to outline these benefits, empowering clients to make decisions that align with their financial goals and healthcare priorities. Since specific tax implications depend on each client’s unique situation, we always recommend clients consult with their tax professional.