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The effect of life insurance on being able to access Medicaid

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Medicaid allows you to have $2000 in assets.  Those assets include savings, checking and cash on hand but many people forget about life insurance policies when they are calculating their assets.  Depending upon the type of policy involved, it too can count as an asset. 

Life insurance policies come in two flavors.  They are usually either “term” or “whole” life insurance.  Term life insurance policies do not count as assets and so won’t affect Medicaid eligibility.  Whole life insurance on the other hand accumulates a cash value that can be accessed by its owner and is generally counted as an asset.

Term life insurance provides a set insurance benefit for a specific amount of time such as 10 years for a specific death benefit such as $500,000.  So a term life insurance policy that was a 10-year, $500,000 policy would pay $500,000 for 10 years as long as the policy is in force.  After the 10-year period, the policy coverage disappears.  For a term life policy, premiums do not change over the period of the life of the policy.

In contrast, a whole life insurance policy provides a death benefit for as long as the policy remains in effect.  Some whole life policies include a savings and investment account and policy holder can use the money that accumulates in those accounts.  There are times when a whole life insurance plan won’t count as an asset.  For instance, say that the value of the policy is less than $1,500.  In that case, it doesn’t count but if the cash surrender value is more than $1,500, the cash surrender value will be counted toward the $2,000 asset limit.

Before taking any actions with a life insurance policy, contact an elder law attorney to find a strategy that will work for you and protect you from being disqualified for Medicaid.  Here’s a story that offers a few other options.


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