Why is long-term care gaining prominence in the insurance industry?

For two reasons. First, tremendous untapped potential exists within the long-term care marketplace. With a large and rapidly aging market segment concerned with quality of life and financial protection, more baby boomers and current retirees are paying attention to this critical issue. Second, these consumers are much more aware of the availability of and the need for private long-term care insurance. There is growing acknowledgement of the validity of long-term care insurance as a financial planning tool of paramount importance for today's retirement planning.

One prime factor motivating this awareness and acceptance is the advantaged tax treatment now available for long-term care. In 1996, the federal government passed the Health Insurance Accountability and Portability Act (HIPAA), which allows tax deductions for long-term care insurance premiums under certain circumstances and declares that benefit payments received under a federally tax-qualified long-term care insurance contract are tax-free. Legislation is pending to expand this favorable tax treatment to include an above-the-line tax deduction for long-term care insurance premiums.

And almost half of all states have now enacted legislation to give tax deductions or credits to consumers who buy long-term care insurance for themselves, their spouse or parents.

Tax incentives are likely to continue to expand. Each year, additional states propose legislation to establish or expand tax incentives for long-term care. Efforts continue at the federal level to expand the circumstances under which consumers can gain tax advantages for the private purchase of long-term care insurance.

LTCG will update you on the progress of tax treatment for long-term care at both the federal and state level. In the meantime, insurers with competitive products should be ready to capture their share of this growing market segment.