Life Insurance and Medicaid Eligibility

As we have pointed out in previous blogs, applying for Nursing Home Medicaid can be tricky. There are assets an applicant can have which are ‘countable’ while others are ‘exempt’. Furthermore, there are Medicaid eligibility rules even within these assets which can get the applicant denied if not addressed properly by an experienced elder law attorney.

One such rule that trips up many, is the burial exclusion policy. Generally, a Medicaid applicant is permitted to “exclude” up to $10,000 to set the resources aside for burial purposes. The assets utilized towards the burial exclusion limit may consist of life insurance, burial contracts, or burial funds.  Over the next couple of weeks, we will explore the various parts of this policy and point out how the various excludable items affect nursing home Medicaid. Today we are going to start with life insurance policies.

A Quick Refresher: What are countable assets for Nursing Home Medicaid?

At first, we will share some basic rules of thumb for assets that may be viewed as ‘countable’ for Medicaid purposes. Basically, all money and property and any item that can be valued and turned into cash is a countable asset. This includes the following:
1. Life Insurance Policies: The cash value of whole life or other life insurance policies is counted as a resource if the burial exclusion maximum has been reached with other assets.
2. Bank and Investment Accounts: Stocks, Bonds, Mutual Funds, Checking Accounts, Savings Accounts, Certificates of Deposit, Money Market Accounts, and Brokerage Accounts.
3. Other Assets: Non-home place Property and Land, prepaid burial contracts, Vehicles in addition to the one exempt vehicle, titled recreational vehicles, timeshares, and investment properties.

Let’s explore life insurance a bit. Two of the most common types of policies are Term and Permanent.

Term Policy: This is like “renting” a life insurance policy. The policy has a specific timeframe or “term” such as 10 years, 20 years, and 30 years, where the policy owner pays premiums so that the beneficiary may receive the death benefit when the insured dies. When the owner closes the policies or does not make their premium payments, the owner does not receive a payout of any sort. When looking at the burial exclusion limit for Medicaid, there are specific rules for term policies that may allow a Medicaid recipient to exclude more than $10K. This is big and should certainly be explored!

Permanent Insurance: This is a policy such as whole life or universal life in which the owner’s premium accumulates a cash value. This cash value may grow over time. The cash value may also enhance the death benefit. When the owner closes the policy, they receive the accumulated value called the “Cash Surrender Value.”  Whole life policies up to $10K may be excluded and when this occurs the cash value is irrelevant. Policies with a face value over $10K may have the cash value counted as a resource for Medicaid purposes.

Sometimes an applicant may be encouraged to surrender a policy so that they may qualify for Medicaid. Since there is great confusion across the industry regarding the burial exclusion policy, these decisions should not be taken lightly. Hurley Elder Care Law can review the total assets, as well as life insurance, and help guide you towards the most advantageous path to Medicaid eligibility.

Who are the players in the policy?

Policy owner: The person who purchased the policy and makes the premium payments.

Insured: The person whose life the policy is based on.

Beneficiary: The person who receives the death benefit when the insured dies.

Often the policy owner and insured are the same but that is not always the case. Policies should be reviewed carefully to determine who all the owner, insured and beneficiaries are as this could be relevant for Medicaid. Policies the Medicaid applicant and spouse own may be countable resources for Medicaid eligibility.

A very careful consideration for a Medicaid recipient is if they are beneficiary of a life insurance policy. This may create issues down the road when the insured dies. It is critical if a Medicaid recipient receives a life insurance settlement that they contact an elder law attorney right away to see what options they may have to protect the funds and preserve Medicaid eligibility. (Or lessen the impact to their Medicaid case.) Hurley Elder Care Law can help you plan to prevent this situation. Call us at 404-843-0121 with your elder law and Medicaid questions.