Long Term Care Certification Practice Test

If a retired executive purchases long-term care insurance upon retirement, what taxes are due at the time of purchase?

1. Taxes on gathered investment income

2. None

3. Capital gains taxes

4. Sales taxes on premiums

The correct answer is: None

When a retired executive purchases long-term care insurance upon retirement, there are generally no taxes due at the time of purchase. This is because the premiums paid for long-term care insurance are not considered taxable income at the point of payment. Instead, long-term care insurance is treated as a personal expense rather than an investment or income-generating asset. Unlike investment income or capital gains, which are subject to taxes based on the earnings generated from investments, long-term care insurance premiums are simply personal costs for a service that provides benefits for future health care needs. As for sales taxes on premiums, long-term care insurance is typically exempt from such taxes in many jurisdictions. Therefore, the correct answer highlights the fact that no immediate tax liabilities are incurred when acquiring this type of insurance.