So you’ve decided to buy long-term care insurance. That could be a wise decision. According to the U.S. Department of Health and Human Services, 70 percent of today’s 65-year-olds will need some form of long-term care in their lifetime.1 That care can be needed for years, and the costs can add up.

Long-term care insurance is an effective way to cover those costs. With long-term care insurance, you pay premiums today for coverage in the future. When you need long-term care, the insurance company pays for some or all of the costs, depending on the terms of your policy.

If you’ve investigated long-term care insurance, you may know that the premiums can be significant, especially if the policy has a variety of extra features. You may assume that you have to pay the premiums out of pocket. While that’s true to an extent, there are options to pay the premiums in a tax-favorable way, possibly reducing your tax liability or utilizing tax-deferred funds in a productive way.

Below are four such ways to pay your long-term care insurance premiums. Consider whether you can implement any of these strategies into your long-term care plan.


Withdraw funds from your HSA.

Have you been contributing to a health savings account, or HSA, for years or even decades? If so, you may have a balance that you’re ready to start using to help fund your retirement. You may not be aware that you can use your HSA funds to pay your LTC insurance premiums. Best of all, the withdrawals are tax-free, just as they are for any other health care expense.

There are restrictions on how much you can withdraw in any year from an HSA for long-term care insurance premiums. The thresholds usually increase with age, so as you get older, you can use this strategy to a greater extent.


Deduct the premiums as medical expenses.

You are allowed to deduct a portion of your premiums from your current-year taxes as a qualified medical expense. Keep in mind, though, that you must use after-tax money to pay the premiums to use this strategy. For instance, if you were to use a tax-free HSA withdrawal to pay the premiums, you couldn’t also deduct those payments.

These deductions can be complicated, and they have a range of restrictions. You may want to consult with a tax or financial professional before filing the deductions.


Transfer money from an annuity.

Do you have money in an annuity that you don’t plan to use as income for retirement? If so, you may be able to use those funds to pay the premiums on your long-term care policy. You simply execute something called a 1035 exchange to transfer the funds out of the annuity and into the long-term care policy. If you implement it correctly, you won’t face any taxes for taking a distribution from the annuity.

In a 1035 exchange, the funds go directly between insurers. The money should never touch your hands or your bank account. Your financial provider and your long-term care insurer should be able to help you fill out the correct paperwork for this kind of transaction.


Use money from a life insurance policy.

There are a couple of ways to take money from a life insurance policy in a tax-advantaged manner and use the funds to pay for long-term care insurance. One is a 1035 exchange, exactly as explained above. It works the same way with life insurance as it does with an annuity.

Another option is to take a loan from your policy. Depending on the cash value and the premiums needed, you may be able to take a loan without negatively impacting the policy. If the distribution is classified as a loan rather than a withdrawal, you won’t face taxes on the funds.

Wondering how you will pay for long-term care? Contact us at Trinity Wealth. We’ll help you analyze your needs and budget, and then help you develop an effective strategy. Let’s start the conversation today.


This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.

16114 – 2016/9/20

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