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Does Life Insurance Affect Medicaid Eligibility?

how life insurance affects medicaid eligibility

Written By Doug Mitchell

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA.  Doug has spent close to 30 years in the insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health.  Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

Holly Mitchell  &

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

Rob Pinner   &

Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

Louis LaBash

Results-driven and innovative life insurance professional with 30 plus years of life insurance industry sales and marketing experience. Recognized as a pioneer in the field, leveraging phone and internet channels to exceed personal sales of over $100 million during the first decade of the 21st century. Creator of a highly effective intuitive IUL life insurance sales software that facilitated the sale of millions of dollars of indexed universal policies by numerous life insurance agents. Proven track record as a Managing General Agent (MGA), Life Agent, IUL Life Insurance Sales Software developer, and leading-edge creator of insurance marketing tools, educational content, and delivery systems.

Table of Contents

You have many things to consider when applying for Medicaid.

Eligibility requirements differ from state to state. Each state has stipulations about life insurance and whether owning a policy will affect your Medicaid eligibility.

Whether you have a life insurance policy already or are considering purchasing one, this valuable financial protection doesn’t have to get in the way of your eligibility.

Keep reading to find out if your policy will affect your Medicaid application and what to do if it does.

First, Understand Medicaid Eligibility and Your Assets

When you apply for Medicaid, the state has to assess your financial eligibility.

Applying for Medicaid is slightly different in every state, but no matter where you apply, you’ll have to document all your assets.

Investments such as stocks, bonds, and CDs count toward your assets.

So do checking and savings accounts, property that isn’t your primary residence, and any extra vehicles.

To be financially eligible for Medicaid, your assets can’t total more than $2,000.

Sometimes life insurance counts toward these assets, and sometimes it doesn’t.

When Does Life Insurance Affect Medicaid Eligibility?

To better understand when life insurance counts as part of your assets and when it does not, make sure you’re familiar with the term “cash value”.

Some life insurance policies grow a cash value, which is not the same thing as the amount that the life insurance policy pays out to your beneficiaries.

The cash value is separate, and you can withdraw and use it before the policy pays out.

Does Term Life Insurance Affect Medicaid Eligibility?

When you purchase a term life insurance policy, you have the policy for a certain amount of time (for example, 20 years), and during that time it doesn’t accumulate any cash value.

Because term life insurance doesn’t accumulate a cash value, you don’t have to worry about it affecting your eligibility for Medicaid. In other words, your term life insurance policy won’t count as an asset.

Does Whole Life Insurance Affect Medicaid Eligibility?

Whole life insurance policies, on the other hand, do not terminate after a certain amount of time. These policies accumulate a cash value that comes out of premium payments and builds up over time.

Under certain circumstances, the cash value of a whole life insurance policy will count toward the sum of your assets and might have a bearing on your ability to get Medicaid.

If the face value of your life insurance policy falls under a certain amount (for the federal government it’s $1,500, but in some states, it’s higher), then your life insurance policy’s cash value will not count toward your assets, as long as the cash value also does not exceed $1,500.

If the face value of your life insurance policy is more than $1,500 to $2,500, depending on the state, then your cash value will count toward your assets.

How to Qualify for Medicaid With Life Insurance

Data on life insurance affecting Medicaid eligibility

You still have a few things to consider once you qualify for Medicaid, even if your life insurance policy does not count as an asset.

One thing you might not have thought about is your income after qualifying for Medicaid.

When you have Medicaid, you’re only allowed to keep $50 of your monthly income. Paying for the term life policy could be difficult under those stipulations.

Transferring Your Policy

You might want to consider transferring your policy to another person.

Transferring a life insurance policy means the policy owner changes, not the beneficiary or the person being insured. Therefore, you can still be insured by your term life insurance policy, and your beneficiaries remain the same, even after you transfer ownership of the policy.

Transferring your life insurance policy is one way to remove the cash value from your assets.

If you aren’t the policy owner, then that cash value is no longer yours and won’t count toward your assets. Control over the policy also no longer belongs to you, so make sure you transfer your policy to a close family member.

Generally, transferring the policy to your children is the best idea.

A spouse might pass away before you do, or you could lose the insurance policy if you end up divorced. Plus, a spouse’s assets count toward your Medicaid eligibility, and they cannot total more than $119,220.

You do have more room with joint assets and spousal assets than you do with your own when qualifying for Medicaid.

Assign Benefits to A Funeral Home

You might also want to assign the policy to a funeral home, because assets going toward funeral costs are not counted when determining your Medicaid eligibility.

This means your life insurance plan’s face value goes directly to the funeral home upon your death. Anything left over will go to your beneficiaries.

Borrow Against Your Cash Value

If transferring your life insurance isn’t right for you, you might consider taking out a loan against your life insurance policy’s cash value.

This effectively reduces your cash value as far as counting it as an asset is concerned. Interest payments also take away from your death benefit, which lowers that, too.

Keep in mind that a lower death benefit means your beneficiaries will receive less money upon your death, so don’t take borrowing against your cash value lightly.

You don’t have to choose between a life insurance policy and qualifying for Medicaid.

It’s possible to have both, and even if your policy counts toward your assets, several options are available for you to still qualify for Medicaid.

If you have any further questions, a lawyer or your local Medicaid office can give you answers. So rest easy knowing that your health is taken care of and that your life insurance policy is there to take care of your loved ones.

Getting Affordable Life Insurance

Being an older American won’t always mean your life insurance premiums are skyrocketing.  It’s easy to let that thought distract you from making the wise decision to protect your family.

Check out these tips on keeping your rate low.

Your Age Matters

As you probably know, your age factors a lot into how much you pay for your protection. The older that you are, the more that the insurance company is going to charge you for coverage, but that doesn’t mean that you have to pay a fortune.

Because your age is going to impact how much you pay for your plan, it’s important that you don’t wait any longer to apply for coverage. Every year that you wait, the more that you’re going to pay for your protection.

Your Health Matters

Another way that you can conserve is to go cold turkey on habits that harm your health, like using products with nicotine.

If you’re a smoker, you should expect to get drastically higher rates for your insurance plan. Smokers have a higher chance of developing health complications like cancer or a heart attack.

That means that you’ll be a high-risk applicant to the company, and up-charge you because taking a risk costs more money. Smokers are going to pay twice as much for their coverage versus what a non-smoker would pay for the same sized plan.

Quitting smoking is not only the best thing that you can do for your health but also the best thing that you can do for your wallet.

Find a Policy That Fits Your Budget

It’s easy to make sure we get the cheapest monthly premium for your budget.  Just get in touch with us and we will use your information to put together a detailed quote from our top life insurance companies.

Our agents are standing by and will answer any life insurance questions you may have.  And since we are an independent agency we can search through numerous policies to find the best fit for you.

Tragedies occur, so don’t hesitate to buy life insurance that will prevent your family from the burden of carrying large debt into the future.

Get an online quote or contact us today at 1-800-712-8519.

Picture of Doug Mitchell, CLU

Doug Mitchell, CLU

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA. Doug has spent close to 30 years in the life insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health. Some other notable items about Doug: Top of the Table Million Dollar Round Table member (MDRT). (MDRT is a global, independent association of the world’s leading life insurance advisors) | Premier Partner with Lincoln Financial and Cabinet Member | Served two years as President of the Auburn/Opelika Association of Financial Advisors | Life Millionaire status at Horace Mann Insurance Company and was awarded the Life Agent of the Year Award | New York Life, Executive Council Member | Currently serves as President of Ogletree Financial, a life insurance General Agency. | Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

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