When it comes to the relationship of Medicaid and life insurance, it is important to remember that the interaction may affect your qualifications for receiving Medicaid. Initiated over 50 years ago, Medicaid was designed to provide the poor with access to medical care. Today, it is an essential part of the Affordable Care Act and millions of people are currently enrolled.
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However, despite being made for Americans who have the least income, there are factors that can lead to disqualification that may actually have little to do with what it earned. Life insurance Medicaid recipients receive is one factor that may prevent being eligible for the program.
How Life Insurance Affects Medicaid Eligibility?
In most states, if you have assets that add up to $2,000 or more, then you cannot qualify for Medicaid. This may include your life insurance policy as well, so you will need to check on the type and overall value of the insurance before trying to apply for Medicaid.
Term life insurance does not count against your Medicaid eligibility because it does not accumulate additional cash value over its lifetime. However, whole life insurance does accumulate cash value and if it is over $2,000, then it will prevent you from qualifying for Medicaid. However, if the face value of the whole life insurance is less than $1,500, then it will not count against your asset limit.
While the process itself does seem overly complicated, the rules are consistent in most states. You will need to review the laws that apply to ensure that you will qualify for Medicaid and not have it denied because of your life insurance policy.
Can Medicaid Take Life Insurance Money?
In order to keep your whole life insurance and Medicaid from interacting, there are a few steps that you can take which will limit the effects.
Cash Out the Policy: If your life insurance policy prevents you from qualifying for Medicaid, you can cash it out and then spend it so that it no longer counts as an asset. Of course, you can always take the cash and put it into a term life policy which then would not count as an asset.
Loan: If you take out a loan against the cash value, it will be reduced along with the death benefit which may put it low enough for you to qualify for Medicaid while still having the policy in place. You will need to balance the amount of the loan with the assets in place so that you will not eliminate the value of the policy in total.
Transfer: You can transfer the policy to your spouse, designated family member, funeral home or special need trust. Transferring the money to your spouse would then apply to their community resource allowance. However, if you apply it to a funeral home to pay for your burial expenses it will no longer be a part of your assets.
Whatever action you take on Medicaid life insurance, you probably should speak to an attorney in order to examine all the options available.