Life Insurance and the Medicaid Application

To qualify for Medicaid in Ohio, an individual can have only $1,500 or less in “countable” assets.  Certain  life  insurance  policies  are  considered  “countable”  assets.  Others  are “exempt”  and  will  not  affect  the  Medicaid  application.  Understanding  the  type  of  life insurance policy you own and its value, both during your lifetime and when you die, will help you best arrange your assets for Medicaid qualification.
Type of Policy

Term Life
The premium for a term life policy pays for insurance only for a certain period of time. Whether you pay monthly or annually, the policy only pays out if you die within the term. If you stop paying, the insurance ends. There is no accumulated cash value. Therefore, term  insurance  is  not  a  “countable”  asset  for  Medicaid  purposes.  There  are  three common ways that people acquire term insurance:

You  may  have  purchased  term  insurance  for  yourself  either  paying  by  check when the bill arrives or on a monthly basis with direct withdrawal from your bank account or your pension check.

The  company  you  worked  for  may  provide  you  with  a  term  policy  or  “death benefit” as a part of your retirement package.

Banks,  auto  clubs,  social  organizations  or  other  groups  may  provide  term
insurance as a benefit of membership. These policies are most often “accidental
death” policies that pay nothing unless you die of an “accident” as defined by the

Whole Life
Whole life policies combine both a death benefit and a savings benefit. A part of each premium you pay goes to accumulate a “cash value”. When the cash value reaches a certain level the policy is said to be “paid up”. At that point, the accumulated cash value and the interest it earns are sufficient to pay the premiums so you don’t have to. You may also choose to “cash in” the policy or take a loan against it. Doing so will eliminate or reduce the amount that your beneficiaries would receive at your death. To the extent that the Medicaid applicant can cash in the policy, it is considered a “countable asset”.

Thus, a whole life policy  will have a “face value”- the original amount of the policy, a “cash value”- the amount accumulated in the “savings” portion of the policy and a “death value”- the face value plus accumulated cash. The death value is the amount the policy will pay out when you die. The cash value is what the insurance company would pay if you cancelled the policy today.

What Does Medicaid Consider “Countable”?
Term  life  insurance  cannot  be  cashed  out  and  thus  has  no  value  that  is

A Medicaid applicant may own one small whole life policy. A policy with a face value of less than $1,500 is considered “exempt” and will not affect the Medicaid application regardless of the cash value.

With the exception of the one “exempt” policy, the cash value of any whole life policy is countable. Thus, a policy with a face value of $5,000 and a cash value of $3,500 would disqualify an applicant from receiving Medicaid since the cash value is more than $1,500.

What to Do?
In  order  to  qualify  for  Medicaid,  the  applicant  must  reduce  his  countable  assets  to $1,500  or  below.  There  are  a  number  of  ways  to  deal  with  the  “countable”  value  of whole life insurance.

1.  Cash in the Policy:  You can request that the insurance company send you the
cash  value  of  the  policy. When  the  check  arrives,  spend  down  excess  assets.
This will eliminate the death benefit and cancel the policy.

2.  Take  a  loan  against  the  policy:    This  will  reduce  both  the  cash  value  and  the death value, but will keep the policy in effect. You will need to continue paying premiums to keep the policy in effect. This may increase the cash value in the future which may disqualify you from Medicaid.

3.  Transfer ownership of the policy to someone else:

Spouse – Married applicants can transfer ownership to a community
spouse.  The  cash  value  would  then  be  part  of  the  community
spouse’s resource allowance.

Funeral Home – The applicant can transfer ownership to a
funeral home to pay for an irrevocable burial plan which is
an exempt asset.

Child or Other – The applicant can transfer the policy to a
child or other individual.

The child could purchase the policy for the cash value. The Applicant could then spend down to $1,500 of countable assets and qualify for Medicaid.

The  transfer  can  also  be  made  as  a  gift.  A  gift  to  a  disabled  child  would  be exempt  from  transfer  penalties,  but  most  gifts  are  penalized  with  a  period  of Medicaid ineligibility.

Change the Beneficiary
Whether the life insurance policy is countable or exempt, whether it now belongs to the Medicaid  applicant  or  someone  else,  consider  changing  the  beneficiaries  of  the policies.  Policies  with  no  living  beneficiary  named  may  be  payable  to  the  Medicaid. Applicant’s  estate  and  subject  to  Medicaid  Recovery.  A  new  owner  of  the  policy  will most probably want to name himself or herself as beneficiary. The applicant’s spouse should also change the beneficiary on his or her  own life insurance policies to name someone  other  than  the  Medicaid  applicant,  since  any  death  benefits  the  applicant
would receive would be countable.

The  handling  of  life  insurance  policies  is  just  one  facet  of  Medicaid  qualification. Consult  with  me  or  an  elder  law  attorney  in  your  area  to  design  and  implement  a personalized comprehensive plan for Medicaid qualification.

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