When planning for Medicaid coverage of a potential nursing home stay, one often overlooked asset that can affect Medicaid eligibility is life insurance. Certain types of life insurance do count toward Medicaid eligibility limits while others do not. Additionally, Medicaid, known as MO HealthNet in Missouri, varies from state to state. This variation can effect what options people have when dealing with life insurance policies and a potential Medicaid application.
The biggest category of life insurance that does not impact Medicaid eligibility is term life insurance. Term life insurance is life insurance that only pays out if the policy holder dies within a certain period of time. If the policy holder outlives this period, the policy expires and there is no payout to the policy holder. Since there is no guaranteed payout, these policies do not count toward Medicaid eligibility limits.
Whole life insurance, on the other hand, does effect Medicaid eligibility. Whole life policies payout a death benefit whenever the policy holder dies. Many whole life policies allow policy holders to borrow money from the policy against future benefits or to fully cash out the policy. Any amount that the policy holder can access now, either as a withdrawal from the policy amount or as an outright early cash surrender value, is considered an asset that counts against Medicaid eligibility limits.
For people who have whole life insurance policies who may potentially apply for Medicaid, there are options. One option is to cash out the life insurance policy and use the money to acquire an asset that does not count toward the Medicaid eligibility limits. However, the present cash surrender value is often much less than the final payout amount. Additionally, if the policy is cashed out and placed into another asset, there is the danger that the new asset still counts toward the Medicaid eligibility limit.
Another option is to transfer the policy out of the Medicaid applicant’s name. Again there is the need to make sure that the policy transfer is effective according the state Medicaid rules where the current policy holder lives. This option, if available, can allow the policy to fully payout when the original policy holder dies.
Individuals considering any actions regarding life insurance and Medicaid eligibility should first meet with a local, experienced elder law attorney before taking any action that may inadvertently harm their Medicaid eligibility. Medicaid eligibility rules and regulations can vary significantly from state to state. What is an exempt asset for a Medicaid eligibility in one state may not be an exempt asset in another state. An elder law attorney will work with a client to figure out the option that works best for a client’s specific financial circumstances.
To discuss how your life insurance policies affect your Medicaid eligibility, please call Martha C. Brown & Associates at (314) 962-0186.