Cash Value in Life Insurance can be a Barrier to Medicaid Benefits

Many who apply for Medicaid are surprised to learn that owning a life insurance with a small amount of cash value disqualifies a otherwise eligible person from receiving benefits.  Term policies (those without cash values) do count against the patient.

However, if the cash surrender value (after deducting fees) of a life insurance policy is over $1500 (that’s fifteen hundred not fifteen thousand) Medicaid will not cover the cost of the nursing home.

What Can Be Done with the Life Insurance?

The options depend on the contract and the values:

Cash Surrender:

One obvious option is to surrender the policy for the cash.  This may cause the patient to have too much cash to qualify for benefits.  So the cash may need to be spent on eligible purchases of goods and services.  This is known as a “Spend Down”.

Accelerated Benefit Rider:

Some policies have a contract provision called a rider that permits the owner to receive some or all the death benefit while alive if they meet certain conditions.  These conditions may be admission to a nursing home, or have a chronic or terminal condition. Your beneficiaries typically receive any unused portion of the death benefit.  The payment will be considered as income in the month it is received and countable as a resource in the following months to the extent it is available.

Convert to a Living Benefit

Almost every type of life insurance policy can be converted into a cash settlement which can be used to pay for medical expenses such as assisted living centers and nursing homes. This is known as a life care settlement.  Often this is the most attractive way to reap the benefits from a term, group or policy with little or no cash value.   This will not create a penalty period but may enable you to have more control over the level of services you receive. Read more.

Transfer for Burial Coverage

Transfer of a policy would preserve the death benefit for the beneficiary but will create a penalty period that will disqualify the owner for benefits for a period to time.  There may be opportunities to convert a policy into an irrevocable burial policy if the amount is $10k or less.

What is your best option?  Feel free to contact my office to discuss the options.  405.340.6554