Pub 502

Long-term Care Contracts, Qualified

   A qualified long-term care insurance is an insurance contract that provides only
   coverage of qualified long-term care services. The contract: 

      1.Must be guaranteed renewable. 
      2.Must not provide for a cash surrender value or other money that can be
        paid, assigned, pledged, or borrowed. 
      3.Must not provide that refunds, other than refunds on the death of the
        insured, or complete surrender or cancellation of the contract, and dividends
        under the contract may be used only to reduce future premiums or increase
        future benefits. 
      4.Generally must not pay or reimburse expenses incurred for services or items
        that would be reimbursed under Medicare, except where Medicare is a
        secondary payer, or the contract makes per diem or other periodic
        payments without regard to expenses. 

Pub 17

Long-Term Care Insurance Contracts 

   Beginning January 1, 1997, qualified long-term care insurance contracts are
   generally treated as accident and health insurance contracts. Amounts you receive
   from them (other than policyholder dividends or premium refunds) generally are
   excludable from income as amounts received for personal injury or sickness. 

   A long-term care insurance contract is any insurance contract that only provides
   coverage of qualified long-term care services. The contract: 

      1.Must be guaranteed renewable. 
      2.Must not provide for a cash surrender value or other money that can be
        paid, assigned, pledged, or borrowed. 
      3.Must provide that refunds, other than refunds on the death of the insured or
        complete surrender or cancellation of the contract, and dividends under the
        contract may be used only to reduce future premiums or increase future
        benefits. 
      4.Generally must not pay or reimburse expenses incurred for services or items
        that would be reimbursed under Medicare, except where Medicare is a
        secondary payer or the contract makes per diem or other periodic payments
        without regard to expenses. 

   Qualified long-term care services. Qualified long-term care services are: 

      1.Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating,
        and rehabilitative services, and 
      2.Maintenance or personal care services required by a chronically ill individual
        as prescribed by a licensed health care practitioner. 

   Chronically ill individual. A chronically ill individual is one who has been certified
   as one of the following: 

      1.An individual who, for at least 90 days, is unable to perform at least two
        activities of daily living without substantial assistance due to loss of functional
        capacity. Activities of daily living are eating, toileting, transferring, bathing,
        dressing, and continence. 
      2.An individual who requires substantial supervision to be protected from
        threats to health and safety due to severe cognitive impairment. 

   The certification must have been made by a licensed health care practitioner within
   the previous 12 months. 

   Limit on exclusion. You can generally exclude from gross income up to $175 a
   day ($63,875 a year) for 1997. The $175 is indexed for inflation after 1997.