(1) In general The term qualified long-term care insurance contract means any insurance contract if
(A) the only insurance protection provided under such contract is coverage of qualified long-term care services,
(B) such contract does not pay or reimburse expenses incurred for services or items to the extent that such expenses are reimbursable under title XVIII of the Social Security Act or would be so reimbursable but for the application of a deductible or coinsurance amount,
(C) such contract is guaranteed renewable,
(D) such contract does not provide for a cash surrender value or other money that can be
(i) paid, assigned, or pledged as collateral for a loan, or
(ii) borrowed,
other than as provided in subparagraph (E) or paragraph (2)(C),
(E) all refunds of premiums, and all policyholder dividends or similar amounts, under such contract are to be applied as a reduction in future premiums or to increase future benefits, and
(F) such contract meets the requirements of subsection (g).
(2) Special rules
(A) Per diem, etc. payments permitted
A contract shall not fail to be described in subparagraph (A) or (B) of paragraph (1) by reason of payments being made on a per diem or other periodic basis without regard to the expenses incurred during the period to which the payments relate.
(B) Special rules relating to medicare
(i) Paragraph (1)(B) shall not apply to expenses which are reimbursable under title XVIII of the Social Security Act only as a secondary payor.
(ii) No provision of law shall be construed or applied so as to prohibit the offering of a qualified long-term care insurance contract on the basis that the contract coordinates its benefits with those provided under such title.
(C) Refunds of premiums
Paragraph (1)(E) shall not apply to any refund on the death of the insured, or on a complete surrender or cancellation of the contract, which cannot exceed the aggregate premiums paid under the contract. Any refund on a complete surrender or cancellation of the contract shall be includible in gross income to the extent that any deduction or exclusion was allowable with respect to the premiums.