Is there a tax ramification for long term care ins cash payment due to a class action settlement?
Due to a class action suit our long term care insurance company offered 6 options for changes to our insurance policy. We chose option 6 which reduced our Benefit Increase Option to 1% and a cash payment of $6000. Will that cash payment somehow figure into my taxes?
Your long term care insurance policy is part of the class action settlement in Haney et al. v. Genworth Life Insurance Company et al., Case No. 3:22-CV-00055-REP pending in the United States District Court for the Eastern District of Virginia.
As a result of the settlement, we are making special settlement options
available for you to reduce or eliminate future premiums in return for adjusting your policy's benefits, while still meaningful coverage. Most options also provide for a one-time cash payment for you.
Option 6 Reduce BOI to 1%: Reduce inflation benefit to 1% compound; recalculate benefit levels by applying 1% compound to original benefit levels; receive a cash payment of $6,000.
Let me know if you need more information.
Thank you,
Dennis
Answers
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Dennis, thank you for contacting the FreeTaxUSA Community!
Generally, court damages or settlements for personal physical injuries or physical sickness are not taxable. Punitive payments are taxable.
Because the Long Term Insurance Policy settlement does not relate to a physical injury or sickness, you will need to pay taxes on the $6000 received. You should be receiving a 1099-MISC reporting the taxable income. This will then be reported as Other Income on your tax return.
