South Carolina Insurance Practice Exam

Premiums that exceed 7 1/2% of an insured's Adjusted Gross Income are tax-deductible under which type of plan?

1. Medicare Plan

2. Qualified Long-Term Care plan

3. Health Savings Accounts

4. Standard Health Insurance

The correct answer is: Qualified Long-Term Care plan

Premiums that exceed 7 1/2% of an insured's Adjusted Gross Income (AGI) are tax-deductible specifically under a Qualified Long-Term Care plan. This tax treatment reflects the acknowledgment of the significant financial burden that long-term care can impose on individuals, especially as they age. The tax code allows taxpayers to deduct long-term care insurance premiums that exceed the specified percentage of their AGI, which serves as an incentive to encourage the purchase of such coverage and to help alleviate some of the financial stress associated with long-term care costs. Qualified Long-Term Care plans must meet specific government criteria to be eligible for this tax benefit, which includes limitations on the amount of daily coverage provided. This deduction is particularly valuable as people consider their options for financing long-term care needs, making it an essential aspect of planning for retirement and healthcare in later years. While other options may provide some tax advantages or benefits, they do not specifically relate to the deduction of premiums based on the 7 1/2% threshold of AGI as defined under tax law for long-term care insurance.