Understanding Long Term Care Benefit IRC Codes
There are two Internal Revenue Codes (IRC) that define long-term care benefits policies.
The first code is IRC Section 7702B. This section is defined as long-term care insurance policies.
The second code section in IRC 101(g). This defines coverage as chronic illness coverage. The code defines that these policies may not be authentic long-term care benefits.
In no instance will you read the words ‘long-term care’ in the insurance company’s brochures.
You will read references to nursing home care, assisted living, and home care but not the words long-term care.
Why Should Buyers Understand The Difference?
Financial advisors and insurance agents find these plans preferable to sell to people because they do not require advisors to have continuing education training.
Reasons a competent extended-care benefits advisor is a helpful colleague to wealth advisors:
a. Health assessment. Most LTC plans require some level of health suitability.
b. Each state is allowed to certify which long-term care plans may be offered. Most advisors know specific LTC plans and companies but often are not aware of other company LTC plans suitable for the client.
c. A traditional plan premiums are deductible if your business is registered as a C Corporation or LLC. The long-term care rider in hybrid plan premiums may be deductible based on the business tax status.
d. Some states offer short-term care plans, which are LTC benefits of one year or less. This is suitable for people who have health or financial suitability issues.
e. A critical care life insurance plan does not offer an increase in benefits meaning the face amount of the plan is the amount of money available. With a regular hybrid plan, the benefits are multiple 2,3, or 4 times the face amount, which increases the amount of money available for caregiving expenses.
Not explaining the difference to those who want to own a caregiving plan may be consequential when qualifying for a claim.
Why do these benefits differ?
All life insurance policy provisions are contractually governed and explained in the policy documents.
The significant issue is that there are no tax considerations to 101(g) as there are with regular 7702 (b) long-term care benefits.
There can be situations where a policy owner needs caregiving that involves activities of daily living.
These situations will not meet the chronic illness definitions and thus allow the policyholder to receive caregiving benefits.
How will you know whether you are being offered a 7702 (b) or 101 (g) caregiving plan?
Ask an extended care benefits advisor or whoever is recommending a care benefit to explain which plan would be of value to you and under what circumstances each plan will pay for caregiving services.