Long-term care insurance contracts provide coverage for qualified long-term care services.  The contract cannot provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed; cannot provide that refunds other than on the death of the insured or complete surrender or cancellation of the contract can be used to reduce future premiums or increase future benefits; and cannot, in most cases, pay or reimburse expenses incurred for services that would be reimbursed under Medicare except where Medicare is a secondary payor or the contract makes per diems or other periodic payments without regard to expense.

Long-term care contracts are must be treated as an accidental and health insurance contract in which the amounts received are for personal injury or sickness and are not subject to tax.

Qualified long-term care services include medical services that are necessary (i) diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabbing, maintenance and personal care services and (ii) by a chronically ill individual pursuant to a plan of care prescribed by a licensed health care practitioner.

A chronic illness is one that has been certified by a licensed health care practitioner within the previous twelve months of (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 the loss of functional capacity.  Activities of daily living include eating, using the toilet, bathing, and dressing and (2) an individual who requires substantial supervision to be protected from threats to health due to severe cognitive impairment.