Life & Health Insurance Practice Exam 2026 – Your All-in-One Guide to Exam Success!

Long-term care (LTC) benefits are generally received tax-free when the plan is classified as a tax-qualified plan. Such classification means that the plan satisfies certain requirements under the Internal Revenue Code, which allows any benefits received to be excluded from the recipient's taxable income.

Tax-qualified plans must adhere to specific regulations, including limitations on the amount of benefits that can be paid and criteria regarding the services and facilities covered. This ensures that benefits are utilized for legitimate long-term care expenses, which in turn provides tax relief to policyholders.

In contrast, non-tax-qualified plans may not offer the same tax advantages, potentially leading to taxable income when benefits are received. Employer-funded plans could have different tax implications based on how they are structured, while benefits exceeding limits might complicate tax situations but wouldn't necessarily guarantee tax-free status. Therefore, having a plan categorized as tax-qualified is essential for ensuring that the long-term care benefits are received income tax-free.