Title 26 — Internal Revenue CodeRelease 119-73
§7702B Treatment of qualified long-term care insurance
Title 26 › Subtitle Subtitle F— - Procedure and Administration › Chapter CHAPTER 79— - DEFINITIONS › § 7702B
Summary
Treats certain long-term care insurance as health insurance for tax rules. If a policy meets the rules below, payments from it count like payments for medical care and the policy is treated like accident and health insurance. Employer plans that offer these policies are treated like employee health plans. The policy must be guaranteed renewable and generally can’t give cash-surrender values, loans, or build a stash of money you can take out. Premium refunds or dividends must reduce future premiums or raise future benefits, except small refunds on death or full cancellation (which can’t be more than the total premiums paid). Riders on life or annuity contracts are treated as separate contracts for these rules, but you cannot deduct premiums paid by using the cash value of a life or annuity policy. Certain retirement or employer plans and IRAs are not treated as annuities for these rules. A “qualified” policy only covers qualified long-term care services. Those are necessary medical and personal care services given under a care plan by a licensed health worker for someone who is “chronically ill.” A chronically ill person has been certified by a licensed practitioner as either unable to do at least 2 activities of daily living (eating, toileting, moving, bathing, dressing, or continence) for at least 90 days, having a similar level of disability, or needing constant supervision because of severe cognitive impairment. Tax-free periodic payments are limited each period to an amount equal to the greater of $175 per day (adjusted after 1997 as law allows) or the actual costs of care, minus any reimbursements. Policies must also meet consumer-protection and disclosure rules based on the NAIC model rules (as of January 1993) and must offer certain nonforfeiture options for level-premium contracts. The tax official (Secretary) decides if contracts meet those model and disclosure rules.
Full Legal Text
Title 26, §7702B
Internal Revenue Code — Source: USLM XML via OLRC
(a)For purposes of this title—
(1)a qualified long-term care insurance contract shall be treated as an accident and health insurance contract,
(2)amounts (other than policyholder dividends, as defined in section 808, or premium refunds) received under a qualified long-term care insurance contract shall be treated as amounts received for personal injuries and sickness and shall be treated as reimbursement for expenses actually incurred for medical care (as defined in section 213(d)),
(3)any plan of an employer providing coverage under a qualified long-term care insurance contract shall be treated as an accident and health plan with respect to such coverage,
(4)except as provided in subsection (e)(3), amounts paid for a qualified long-term care insurance contract providing the benefits described in subsection (b)(2)(A) shall be treated as payments made for insurance for purposes of section 213(d)(1)(D), and
(5)a qualified long-term care insurance contract shall be treated as a guaranteed renewable contract subject to the rules of section 816(e).
(b)For purposes of this title—
(1)The term “qualified long-term care insurance contract” means any insurance contract if—
(A)the only insurance protection provided under such contract is coverage of qualified long-term care services,
(B)such contract does not pay or reimburse expenses incurred for services or items to the extent that such expenses are reimbursable under title XVIII of the Social Security Act or would be so reimbursable but for the application of a deductible or coinsurance amount,
(C)such contract is guaranteed renewable,
(D)such contract does not provide for a cash surrender value or other money that can be—
(i)paid, assigned, or pledged as collateral for a loan, or
(ii)borrowed,
(E)all refunds of premiums, and all policyholder dividends or similar amounts, under such contract are to be applied as a reduction in future premiums or to increase future benefits, and
(F)such contract meets the requirements of subsection (g).
(2)(A)A contract shall not fail to be described in subparagraph (A) or (B) of paragraph (1) by reason of payments being made on a per diem or other periodic basis without regard to the expenses incurred during the period to which the payments relate.
(B)(i)Paragraph (1)(B) shall not apply to expenses which are reimbursable under title XVIII of the Social Security Act only as a secondary payor.
(ii)No provision of law shall be construed or applied so as to prohibit the offering of a qualified long-term care insurance contract on the basis that the contract coordinates its benefits with those provided under such title.
(C)Paragraph (1)(E) shall not apply to any refund on the death of the insured, or on a complete surrender or cancellation of the contract, which cannot exceed the aggregate premiums paid under the contract. Any refund on a complete surrender or cancellation of the contract shall be includible in gross income to the extent that any deduction or exclusion was allowable with respect to the premiums.
(c)For purposes of this section—
(1)The term “qualified long-term care services” means necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services, which—
(A)are required by a chronically ill individual, and
(B)are provided pursuant to a plan of care prescribed by a licensed health care practitioner.
(2)(A)The term “chronically ill individual” means any individual who has been certified by a licensed health care practitioner as—
(i)being unable to perform (without substantial assistance from another individual) at least 2 activities of daily living for a period of at least 90 days due to a loss of functional capacity,
(ii)having a level of disability similar (as determined under regulations prescribed by the Secretary in consultation with the Secretary of Health and Human Services) to the level of disability described in clause (i), or
(iii)requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.
(B)For purposes of subparagraph (A), each of the following is an activity of daily living:
(i)Eating.
(ii)Toileting.
(iii)Transferring.
(iv)Bathing.
(v)Dressing.
(vi)Continence.
(3)The term “maintenance or personal care services” means any care the primary purpose of which is the provision of needed assistance with any of the disabilities as a result of which the individual is a chronically ill individual (including the protection from threats to health and safety due to severe cognitive impairment).
(4)The term “licensed health care practitioner” means any physician (as defined in section 1861(r)(1) of the Social Security Act) and any registered professional nurse, licensed social worker, or other individual who meets such requirements as may be prescribed by the Secretary.
(d)(1)If the aggregate of—
(A)the periodic payments received for any period under all qualified long-term care insurance contracts which are treated as made for qualified long-term care services for an insured, and
(B)the periodic payments received for such period which are treated under section 101(g) as paid by reason of the death of such insured,
(2)For purposes of paragraph (1), the per diem limitation for any period is an amount equal to the excess (if any) of—
(A)the greater of—
(i)the dollar amount in effect for such period under paragraph (4), or
(ii)the costs incurred for qualified long-term care services provided for the insured for such period, over
(B)the aggregate payments received as reimbursements (through insurance or otherwise) for qualified long-term care services provided for the insured during such period.
(3)For purposes of this subsection—
(A)all persons receiving periodic payments described in paragraph (1) with respect to the same insured shall be treated as 1 person, and
(B)the per diem limitation determined under paragraph (2) shall be allocated first to the insured and any remaining limitation shall be allocated among the other such persons in such manner as the Secretary shall prescribe.
(4)The dollar amount in effect under this subsection shall be $175 per day (or the equivalent amount in the case of payments on another periodic basis).
(5)In the case of a calendar year after 1997, the dollar amount contained in paragraph (4) shall be increased at the same time and in the same manner as amounts are increased pursuant to section 213(d)(10).
(6)For purposes of this subsection, the term “periodic payment” means any payment (whether on a periodic basis or otherwise) made without regard to the extent of the costs incurred by the payee for qualified long-term care services.
(e)Except as otherwise provided in regulations prescribed by the Secretary, in the case of any long-term care insurance coverage (whether or not qualified) provided by a rider on or as part of a life insurance contract or an annuity contract—
(1)This title shall apply as if the portion of the contract providing such coverage is a separate contract.
(2)No deduction shall be allowed under section 213(a) for any payment made for coverage under a qualified long-term care insurance contract if such payment is made as a charge against the cash surrender value of a life insurance contract or the cash value of an annuity contract.
(3)For purposes of this subsection, the term “portion” means only the terms and benefits under a life insurance contract or annuity contract that are in addition to the terms and benefits under the contract without regard to long-term care insurance coverage.
(4)For purposes of this subsection, none of the following shall be treated as an annuity contract:
(A)A trust described in section 401(a) which is exempt from tax under section 501(a).
(B)A contract—
(i)purchased by a trust described in subparagraph (A),
(ii)purchased as part of a plan described in section 403(a),
(iii)described in section 403(b),
(iv)provided for employees of a life insurance company under a plan described in section 818(a)(3), or
(v)from an individual retirement account or an individual retirement annuity.
(C)A contract purchased by an employer for the benefit of the employee (or the employee’s spouse).
(f)(1)If—
(A)an individual receives coverage for qualified long-term care services under a State long-term care plan, and
(B)the terms of such plan would satisfy the requirements of subsection (b) were such plan an insurance contract,
(2)For purposes of paragraph (1), the term “State long-term care plan” means any plan—
(A)which is established and maintained by a State or an instrumentality of a State,
(B)which provides coverage only for qualified long-term care services, and
(C)under which such coverage is provided only to—
(i)employees and former employees of a State (or any political subdivision or instrumentality of a State),
(ii)the spouses of such employees, and
(iii)individuals bearing a relationship to such employees or spouses which is described in any of subparagraphs (A) through (G) of section 152(d)(2).
(g)(1)The requirements of this subsection are met with respect to any contract if the contract meets—
(A)the requirements of the model regulation and model Act described in paragraph (2),
(B)the disclosure requirement of paragraph (3), and
(C)the requirements relating to nonforfeitability under paragraph (4).
(2)(A)The requirements of this paragraph are met with respect to any contract if such contract meets—
(i)The following requirements of the model regulation:
(I)section 7A (relating to guaranteed renewal or noncancellability), and the requirements of section 6B of the model Act relating to such section 7A.
(II)section 7B (relating to prohibitions on limitations and exclusions).
(III)section 7C (relating to extension of benefits).
(IV)section 7D (relating to continuation or conversion of coverage).
(V)section 7E (relating to discontinuance and replacement of policies).
(VI)section 8 (relating to unintentional lapse).
(VII)section 9 (relating to disclosure), other than section 9F thereof.
(VIII)section 10 (relating to prohibitions against post-claims underwriting).
(IX)section 11 (relating to minimum standards).
(X)section 12 (relating to requirement to offer inflation protection), except that any requirement for a signature on a rejection of inflation protection shall permit the signature to be on an application or on a separate form.
(XI)section 23 (relating to prohibition against preexisting conditions and probationary periods in replacement policies or certificates).
(ii)The following requirements of the model Act:
(I)section 6C (relating to preexisting conditions).
(II)section 6D (relating to prior hospitalization).
(B)For purposes of this paragraph—
(i)The terms “model regulation” and “model Act” mean the long-term care insurance model regulation, and the long-term care insurance model Act, respectively, promulgated by the National Association of Insurance Commissioners (as adopted as of January 1993).
(ii)Any provision of the model regulation or model Act listed under clause (i) or (ii) of subparagraph (A) shall be treated as including any other provision of such regulation or Act necessary to implement the provision.
(iii)For purposes of this section and section 4980C, the determination of whether any requirement of a model regulation or the model Act has been met shall be made by the Secretary.
(3)The requirement of this paragraph is met with respect to any contract if such contract meets the requirements of section 4980C(d).
(4)(A)The requirements of this paragraph are met with respect to any level premium contract, if the issuer of such contract offers to the policyholder, including any group policyholder, a nonforfeiture provision meeting the requirements of subparagraph (B).
(B)The nonforfeiture provision required under subparagraph (A) shall meet the following requirements:
(i)The nonforfeiture provision shall be appropriately captioned.
(ii)The nonforfeiture provision shall provide for a benefit available in the event of a default in the payment of any premiums and the amount of the benefit may be adjusted subsequent to being initially granted only as necessary to reflect changes in claims, persistency, and interest as reflected in changes in rates for premium paying contracts approved by the appropriate State regulatory agency for the same contract form.
(iii)The nonforfeiture provision shall provide at least one of the following:
(I)Reduced paid-up insurance.
(II)Extended term insurance.
(III)Shortened benefit period.
(IV)Other similar offerings approved by the appropriate State regulatory agency.
(5)For coordination of the requirements of this subsection with State requirements, see section 4980C(f).
Legislative History
Notes & Related Subsidiaries
Inflation Adjusted Items for Certain YearsFor inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under section 1 of this title.
Editorial Notes
References in Text
The Social Security Act, referred to in subsec. (b)(1)(B), (2)(B)(i), is act Aug. 14, 1935, ch. 531, 49 Stat. 620. Title XVIII of the Act is classified generally to subchapter XVIII (§ 1395 et seq.) of chapter 7 of Title 42, The Public Health and Welfare. section 1861(r)(1) of the Act is classified to section 1395x(r)(1) of Title 42. For complete classification of this Act to the Code, see section 1305 of Title 42 and Tables.
Amendments
2006—Subsec. (e). Pub. L. 109–280, § 844(c), amended subsec. (e) generally. Prior to amendment, subsec. (e) related to treatment of coverage provided as part of a life insurance contract. Subsec. (e)(1). Pub. L. 109–280, § 844(f), substituted “title” for “section”. 2004—Subsec. (f)(2)(C)(iii). Pub. L. 108–311 substituted “subparagraphs (A) through (G) of section 152(d)(2)” for “paragraphs (1) through (8) of section 152(a)”. 1998—Subsec. (e)(2). Pub. L. 105–206 inserted “section” after “Application of” in heading. 1997—Subsec. (c)(2)(B). Pub. L. 105–34, § 1602(b), inserted “described in subparagraph (A)(i)” after “chronically ill individual” in concluding provisions. Subsec. (g)(4)(B)(ii), (iii)(IV). Pub. L. 105–34, § 1602(e), substituted “appropriate State regulatory agency” for “Secretary”. 1996—Subsec. (g). Pub. L. 104–191, § 325, added subsec. (g).
Statutory Notes and Related Subsidiaries
Effective Date
of 2006 AmendmentAmendment by Pub. L. 109–280 applicable to contracts issued after Dec. 31, 1996, but only with respect to taxable years beginning after Dec. 31, 2009, except as otherwise provided, see section 844(g)(1) of Pub. L. 109–280, set out as a note under section 72 of this title. Amendment by section 844(f) of Pub. L. 109–280 effective as if included in section 321(a) of Pub. L. 104–191, see section 844(g)(5) of Pub. L. 109–280, set out as a note under section 72 of this title.
Effective Date
of 2004 AmendmentAmendment by Pub. L. 108–311 applicable to taxable years beginning after Dec. 31, 2004, see section 208 of Pub. L. 108–311, set out as a note under section 2 of this title.
Effective Date
of 1997 AmendmentAmendment by Pub. L. 105–34 effective as if included in the provisions of the Health Insurance Portability and Accountability Act of 1996, Pub. L. 104–191, to which such amendment relates, see section 1602(i) of Pub. L. 105–34, set out as a note under section 26 of this title.
Effective Date
of 1996 AmendmentAmendment by section 325 of Pub. L. 104–191 applicable to contracts issued after Dec. 31, 1996, with provisions of section 321(f) of Pub. L. 104–191, set out as an
Effective Date
note below, applicable to such contracts, see section 327 of Pub. L. 104–191, set out as an
Effective Date
note under section 4980C of this title.
Effective Date
Pub. L. 104–191, title III, § 321(f), Aug. 21, 1996, 110 Stat. 2059, provided that: “(1) General
Effective Date
.—“(A) In general.—Except as provided in subparagraph (B), the
Amendments
made by this section [enacting this section and amending section 106, 125, 807, and 4980B of this title, section 1167 of Title 29, Labor, and section 300bb–8 of Title 42, The Public Health and Welfare] shall apply to contracts issued after
December 31, 1996. “(B) Reserve method.—The amendment made by subsection (b) [amending section 807 of this title] shall apply to contracts issued after
December 31, 1997. “(2) Continuation of existing policies.—In the case of any contract issued before
January 1, 1997, which met the long-term care insurance requirements of the State in which the contract was sitused [sic] at the time the contract was issued—“(A) such contract shall be treated for purposes of the Internal Revenue Code of 1986 as a qualified long-term care insurance contract (as defined in section 7702B(b) of such Code), and “(B) services provided under, or reimbursed by, such contract shall be treated for such purposes as qualified long-term care services (as defined in section 7702B(c) of such Code). In the case of an individual who is covered on
December 31, 1996, under a State long-term care plan (as defined in section 7702B(f)(2) of such Code), the terms of such plan on such date shall be treated for purposes of the preceding sentence as a contract issued on such date which met the long-term care insurance requirements of such State. “(3) Exchanges of existing policies.—If, after the date of enactment of this Act [Aug. 21, 1996] and before
January 1, 1998, a contract providing for long-term care insurance coverage is exchanged solely for a qualified long-term care insurance contract (as defined in section 7702B(b) of such Code), no gain or loss shall be recognized on the exchange. If, in addition to a qualified long-term care insurance contract, money or other property is received in the exchange, then any gain shall be recognized to the extent of the sum of the money and the fair market value of the other property received. For purposes of this paragraph, the cancellation of a contract providing for long-term care insurance coverage and reinvestment of the cancellation proceeds in a qualified long-term care insurance contract within 60 days thereafter shall be treated as an exchange. “(4) Issuance of certain riders permitted.—For purposes of applying section 101(f), 7702, and 7702A of the Internal Revenue Code of 1986 to any contract—“(A) the issuance of a rider which is treated as a qualified long-term care insurance contract under section 7702B, and “(B) the addition of any provision required to conform any other long-term care rider to be so treated, shall not be treated as a modification or material change of such contract. “(5) Application of per diem limitation to existing contracts.—The amount of per diem payments made under a contract issued on or before
July 31, 1996, with respect to an insured which are excludable from gross income by reason of section 7702B of the Internal Revenue Code of 1986 (as added by this section) shall not be reduced under subsection (d)(2)(B) thereof by reason of reimbursements received under a contract issued on or before such date. The preceding sentence shall cease to apply as of the date (after
July 31, 1996) such contract is exchanged or there is any contract modification which results in an increase in the amount of such per diem payments or the amount of such reimbursements.” Long-Term Care Study Request Pub. L. 104–191, title III, § 321(g), Aug. 21, 1996, 110 Stat. 2060, related to a study of the marketing and other effects of per diem limits on certain types of long-term care policies, and provided that if the National Association of Insurance Commissioners agreed to the study request by Congress, the Association would report the results of the study not later than 2 years after accepting the request.
Reference
Citations & Metadata
Citation
26 U.S.C. § 7702B
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73