Critter Corner: Can I Use a Health Savings Account to Pay for Long-Term-Care Insurance or a Hybrid Life Insurance Policy?

Dear Angel,

I have a Health Savings Account through my work. Can I withdraw money tax-free from my health savings account to pay my long-term-care insurance premiums? If I can, is there a limit to the amount I can use? Does it have to be for a stand-alone long-term-care policy, or can it be for a life insurance policy with long-term-care benefits, too?


Elle Teesee

Dear Elle,

Yes, you can use Health Savings Account (HSA) money to pay premiums for an eligible long-term-care (LTC) insurance policy. Here are the stipulations:

– The amount you can withdraw tax-free each year is based on your age at the end of the year. The older you are, the more you can withdraw tax-free.

-The amount increases slightly every year, and the limits are per person. In 2018, people who are 40 or younger can withdraw up to $420 tax-free from an HSA to pay their long-term-care insurance premiums. People age 41 to 50 can withdraw $780; those age 51 to 60 can withdraw $1,560; those age 61 to 70 can withdraw $4,160; and if you’re 71 or older you can withdraw $5,200.

-To qualify for the tax-free HSA withdrawals or the tax deduction for long-term-care insurance premiums, the policy must be a “qualified long-term-care insurance contract,” which includes most stand-alone long-term-care policies currently on the market. Ask your insurer if your policy is eligible. Life insurance policies that can also provide a long-term-care benefit unfortunately don’t qualify.

If you don’t have an HSA or you don’t use HSA money for these expenses, your long-term-care insurance premiums may be tax-deductible up to the same limits listed above. To qualify for the medical-expense deduction in 2018, you must itemize, and your eligible medical expenses are deductible only to the extent that they exceed 10% of your adjusted gross income. Your state may offer an additional break from your state income taxes for qualified long-term-care insurance premiums.

Although the premiums may be tax deductible and you can use HSA to pay for them, the reality is that only about 10% of the population has this type of traditional long-term care insurance, and for many good reasons. Mr. Farr generally does not recommend traditional long-term care insurance, but prefers hybrid policies with long-term care benefits, when appropriate. Please read our most recent article on this subject for more details.

To discuss traditional long-term care insurance or hybrid policies with long-term care benefits or other strategies for long-term care planning, please contact Mr. Farr to make an appointment for a no-cost initial consultation.


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