When applying for Medicaid many people often forget about life insurance. But depending on the type of life insurance and the value of the policy, it can count as an asset. This may affect your eligibility for Medicaid.
What Is Medicaid? Am I Eligible?
Medicaid is a public assistance program jointly run by the federal government and each state. It helps provide health insurance benefits to low-income families, seniors, and people with disabilities.
In order to qualify for Medicaid, you can't have more than $2,000 in assets (in most states). The type of life insurance policy you have may also affect your eligibility for Medicaid.
Life Insurance Policies and Medicaid
Life insurance policies are usually either term life insurance or whole life insurance.
If a Medicaid applicant has term life insurance, it doesn’t count as an asset and won't affect Medicaid eligibility. This is because this form of insurance does not have an accumulated cash value.
- On the other hand, whole life insurance accumulates a cash value that the owner can access. Therefore, it can be counted as an asset.
That said, Medicaid law exempts small whole life insurance policies from the calculation of assets. If the policy's face value is less than $1,500, then it won't count as an asset for Medicaid eligibility purposes. However, if the policy’s face value is more than $1,500, the cash surrender value becomes an available asset.
For example, suppose a Medicaid applicant has a whole life insurance policy with a $1,500 death benefit and a $700 cash surrender value (the amount you would get if you cash in the policy before death). The policy is exempt and won't be used to determine the applicant's eligibility for Medicaid. However, if the death benefit is $1,750 and the cash value is $700, the cash surrender value will be counted toward the $2,000 asset limit.
What to Do If Your Life Insurance Policy Disqualifies You From Medicaid
If you have a life insurance policy that may disqualify you from Medicaid, you have a few options:
Surrender the policy and spend down the cash value.
Transfer ownership of the policy to your spouse or to a special needs trust. If you transfer the policy to your spouse, the cash value would then be part of their community spouse resource allowance (CSRA).
Transfer ownership of the policy to a funeral home. The policy can be used to pay for your funeral expenses, which is an exempt asset.
Take out a loan on the cash value. This reduces the cash value and the death benefit but keeps the policy in place.
Consult an Attorney
Before taking any action with your policy, be sure to talk to an attorney. They can assist you in determining what the best strategy is for your situation. Find a qualified elder law attorney near you today.