04 Dec What life insurance means for Medicaid
Q. When Medicaid looks at assets, is a life insurance policy considered an asset?
A. You must meet certain financial requirements in order to qualify for Medicaid.
Included among the requirements is that an applicant can’t have assets worth more than $2,000 — with certain specific exceptions.
Life insurance is one of those assets that people often fail to realize needs to be part of the calculation, said Gary Botwinick, an estate planning attorney and chair of the taxation/trusts and estates department at Einhorn Harris in Denville.
Let’s first go over what kinds of life insurance policies are out there.
The most common types of life insurance which people own are “term life insurance” or “whole life insurance” policies, Botwinick said.
He said term life insurance is a type of policy where you pay regular premiums — usually level and equal — and the insurance company agrees to pay a death benefit to your designated beneficiaries if you die during the term of the policy. The term of the policy is typically 10, 15 or 20 years, he said.
Then there’s whole life insurance, which also provides a death benefit, but the policy typically remains available for the entire lifetime of the insured, he said.
“In order to provide the availability of the death benefit well into your golden years, 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,” Botwinick said.
The extra money that is paid in the form of a larger premium for the whole life policy is held in an account which the owner of the policy can borrow from during his or her lifetime. This additional amount is typically referred to as the “cash surrender value,” he said.
“If the owner of the policy decides to cancel the policy after several years of paying premiums, the cash surrender value of the policy will have grown, and the insurance company will pay this value back to the owner after satisfying any surrender charges,” he said.
Now back to Medicaid.
Applicants must report the ownership of life insurance policies, Botwinick said.
“Because whole life insurance policies build up a cash surrender value, this amount is considered a countable resource for a Medicaid application,” he said.
But for term insurance, because there is no cash surrender value that builds up in the policy, it will not count as an asset and won’t affect Medicaid eligibility, Botwinick said.
“There are, of course, several planning techniques that a policy owner may wish to discuss with an attorney before applying for Medicaid which can allow the family to maintain the policy without causing a disqualification from Medicaid,” he said.
Email your questions to .
This post was first published in December 2017.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.