How Life Insurance Can Affect Medicaid

In order to qualify for Medicaid coverage, you must meet the certain financial requirements that they set in place. Meaning, that your assets can impact your eligibility for Medicaid. This includes any large sums of money you may have invested in life insurance with. Excluding certain expectations, a common requirement for Medicaid applicants is that they cannot have any assets that are worth more than $2,000, which proves to be a problem for those who have life insurance. More often than not, applicants forget that any life insurance investments they may have, have to be calculated in their overall asset total, causing them to miss out on the benefits of Medicaid health insurance coverage. Unfortunately, investments in life insurance can ruin the chances of eligibility for Medicaid for many, many, families.

Medicaid Life Insurance

Gary Botwinick, an estate planning attorney and chair of the taxation/trusts and estates department at Einhorn Harris in Denville, discusses the importance of documenting any source of assets that are associated with life insurance policies. He claims that far too many people who have income invested in life insurance fail to incorporate it into their calculations for their Medicaid application.

Term and Whole Life Settlement

The two most common forms of life insurance are whole life insurance and term life insurance. Unfortunately, having life insurance can negatively affect one’s application since the policy is considered an asset that is about the standard $2,000 requirement. Botwinick explains, “Because whole life insurance policies build up a cash surrender value, this amount is considered a countable resource for a Medicaid application” (Source). However, there is an exception to this rule. If the applicant has term insurance rather than whole life insurance, then that person is not expected to list this as an asset and, therefore, will not affect their eligibility for Medicaid.

So how is it that one life insurance policy can impact one’s eligibility for Medicaid, while the other doesn’t?

With term life insurance, the policyholder will be required to pay premiums on a regular basis–usually monthly. Additionally, if you or your loved one passes away during the term of the policy, the insurance company will agree to pay a death benefit to the specified inheritors. This policy usually is anywhere from 10 to 20 years long.

In the case of whole life insurance, the policy will remain for the entire lifetime of the investor. However, there is a death benefit but it will require investors to pay a much higher monthly premium. In reference to the death benefit, Botwinick explains, “…the insurance company charges a much higher premium, and reserves a portion of each premium to invest for growth so that there are sufficient dollars to cover the mortality risk as the insured grows older.” Additionally, this type of life insurance allows for a cash surrender value, meaning, that any extra money that is paid towards the premium is placed in an account that the policyholder can always have access to–for borrowing purposes. However, in the event the policyholder decides to cancel the policy, the cash surrender value will be paid back to the owner (after cancellation fees are accounted for, of course). Unfortunately, this cash surrender option is considered a form of assets and needs to be claimed in the Medicaid application, unlike term life insurance.

Sell Your Life Insurance Policy For a Life Settlement

Life insurance isn’t cheap and premiums keep rising year after year. A life settlement is absolutely the best option to get rid of unneeded or unwanted policies. Sell your life insurance policy for cash with Life Settlements Inc. Contact us today at 1-866-326-5433.

wizard_ishAugust 23, 2020