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.
In order to qualify for Medicaid, you can’t have more than $8,000 or $2,400 in assets, depending upon income level. 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 because this form of life insurance does not have an accumulated cash value. On the other hand, whole life insurance accumulates a cash value that the owner can access, so 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 $1,500 or less, 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 asset limit.
If you have a life insurance policy that may disqualify you from Medicaid, you have multiple options:
- Transfer ownership to a funeral home as payment for a pre-arranged funeral, which is an exempt asset.
- Transfer ownership to your spouse or to a trust for a disabled son or daughter. Such transfers are not subject to a penalty.
- Either surrender the policy and claim its cash value or sell it on the secondary market, whichever yields more.
- Take out a loan on the cash value. This reduces the cash value and the death benefit, but keeps the policy in place.
- If the death benefit is substantially higher than the cash value, gift the policy as part of an asset protection plan implemented by an elder law attorney.
Before taking any actions with a life insurance policy, you should talk to your attorney to find out what is the best strategy for you.
Contact Vasiliadis Pappas Associates to learn more about your options and other measures to protect yourself.