Tax TreatmentQuestion 234 of 716
How are benefits paid from a tax-qualified long-term care insurance contract generally treated for federal income tax?
a.Subject to a flat 10% additional tax whenever the benefits are received before the insured reaches age 59½
b.Fully tax-free to the insured, with no cap at all on the daily benefit that may be excluded
c.Excluded from gross income up to the greater of the IRS per-diem limit or actual qualified LTC expenses
d.Always fully taxable as ordinary income to the insured in the calendar year when the benefits are received
Explanation
Under IRC §7702B, benefits from a tax-qualified LTC policy are excluded from gross income up to the indexed per-diem limit (set annually by the IRS) or the actual cost of qualified LTC services, whichever is greater. Reimbursement-style benefits paid for actual expenses are fully excluded; per-diem benefits are excluded up to the daily cap.
Law Reference: IRC §7702BThis topic, taught in full in the California Life & Health Insurance Producer Exam guide. California Life & Health Insurance Producer Exam — Complete Study Guide (2026) — PDF + EPUB, $19.99 · 14-day refund →
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Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)