Long Term Care Insurance can be a wonderful thing. Ask anyone who knows about how expensive retirement homes can be. In general, the elderly can expect to need 1-3 years of care either in-home or at some type of extended care facility. How these insurance policies pay out can determine if they are taxable, or not.
Policies that merely reimburse for expenses paid are NOT taxable.
Those policies that pay out on a per diem basis (so much per day) COULD BE taxable. To determine if the amount received is taxable, IRS Form 8853 will have to be filled out with the tax return. Generally you will have taxable income only if the amount of your actual expenses is less than your reimbursement amount. You are required to included your expenses, days of care, and your reimbursement on IRS Form 8853.