Many people forget about life insurance when calculating their assets but depending on the type of life insurance and the value of the policy, it can count as an asset.
If a Medicaid applicant has term life insurance, it does NOT count as an asset and won’t affect Medicaid eligibility because this form of life insurance does not have a cash value. On the other hand, if you have whole life insurance and it has accumulated a cash value that the owner can access, it can be counted as an asset.
Are there any exemptions?
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 asset and is counted.
For example, suppose you have a whole life insurance policy with a $1,500 death benefit and a $700 cash surrender value. The policy is exempt and won’t be used to determine your eligibility for Medicaid. However, if the death benefit is $2,500 and the cash value is $700, the cash surrender value (the $700) will be counted toward the $2,000 asset limit.
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 the spouse’s community resource allowance.
- 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.