Non-Tax-Qualified (NTQ) Policies

Non-tax-qualified (NTQ) long term care insurance policies do not enjoy the tax advantages of tax-qualified plans, but they have other advantages. Many non-tax- qualified policies include a “Medical Necessity” trigger. This means that the policy will pay benefits if the insured’s physician states that the patient needs long-term care. This is a less stringent standard than with other policies, because it may be invoked if a patient needs a catheter or injections that he or she cannot manage alone.

A non-tax-qualified policy recognizes one additional activity of daily living, in addition to the six recognized by tax-qualified policies.
Tax-qualified policies consider eating, bathing, dressing, toileting, continence and transferring to be activities of daily living, but non-tax-qualified policies add ambulating (walking) to the list.
Most policies require that the insured be unable to perform at least two of these activities in order to be eligible for benefits, but some non-tax-qualified policies require that the insured be unable to perform three of the activities.
In addition, the standard for those with cognitive impairment is less strict in non-tax-qualified policies.
A non-tax-qualified policy does not require a 90-day elimination period. These policies will cover short-term nursing home stays, such as may be required for rehabilitation from a stroke or accident.

There is, of course, a disadvantage to non-tax-qualified policies. The benefit from non-tax-qualified policies may be taxed in the future. Currently, benefits from long-term care insurance policies are not taxed. However, only tax-qualified long-term care insurance policies have a stipulation that the benefit will not be taxed in the future. Non-tax- qualified policies do not include this stipulation, leaving them open to taxation in the future. A daily benefit of $250 translates to $91,250 per year that may be considered taxable income to the owner of a non-tax-qualified policy.