First of all, I commend you on your foresight and courage and love for your mom. It’s not easy to discuss matters like this with our aging parents. And, it’s a very loving thing to say, “Mom, I want to make sure you get the best possible care, so let’s plan ahead, just in case it happens.”

To clarify a few points:

1) Benefits from a Non-tax qualified long term care policy may or may not be taxable. No one knows for sure. To date, I have not seen any proof of anyone being taxed for receiving benefits under a non-tax-qualiied policy. The part of tax code that discusses “tax qualified” policies is silent in regards to the taxability of benefits received under a non-tax-qualified policy. Other parts of the tax code would seem to imply that the benefits received under a non-tax-qualified policy would be tax-free, if the premiums were paid with after-tax dollars (which they most likely would be.)

2) The problem with a “medical necessity” trigger, however, is its ambiguity. When is care “medically necessary” and when is it not? The majority of long term care policies sold over the past 20 years use the “Activities of Daily Living” (ADL’s) as the trigger for qualifying for benefits. This trigger is more “objective”. Either someone needs assistance with 2 of the 6 ADL’s or they do not.

3) There are very few companies that still offer “non tax qualified” policies. Additionally, most of the “non tax qualified” policies that are available today do NOT have a ‘medical necessity’ trigger. They use an ADL trigger, just like the tax-qualified policies.

4) Lastly, you stated, “How I understand this is that she would qualify for Non-Tax Qualified care…so I have to do a little digging on the subject.” I’m not sure what you mean by this. If you mean that your mother currently needs some type of assistance with ADL’s or assistance with IADL’s (Instrumental Activities of Daily Living like managing medications, housekeeping, meal preparation, etc…) then she is probably not healthy enough to qualify for any long term care insurance policy.

I hope this is helpful.

Scott A. Olson, CLTC