Will Medicaid count my life insurance?

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Q. I have a single premium life insurance policy with my children as beneficiaries. If I change the ownership to the beneficiaries, will I qualify for New Jersey Medicaid after the five-year look back period? What are the consequences of such a change?
— Senior

A. The simple and short answer to your question is yes.

If you change the ownership of the life insurance policy before the five-year look back period, then the whole life insurance policy would be exempt from Medicaid spend down, said Geraldine Callahan of Callahan Financial Services in East Hanover.

When it comes to life insurance, Medicaid is not concerned with the insured of a life insurance policy or who the beneficiary is but rather who is the owner of the policy, Callahan said.

“The owner has legal rights and can access the funds at any given time, and since a Medicaid applicant cannot have more than $2,000 in assets, having access to the additional funds in the life insurance policy could jeopardize eligibility,” she said.

If your child is the owner, you would have no access to the funds.

Many people change the ownership of their life insurance policy as a planning strategy, she said.

Let’s review the Medicaid rules for life insurance.

A Medicaid applicant may own one or more small whole life policies, Callahan said.

The total combined face value(s) of $1,500 or less is considered “exempt” and will not affect the Medicaid application, while anything exceeding this amount will be countable.

So, for example, a $3,500 dollar policy with cash value of $1,800 would disqualify the applicant from receiving Medicaid benefits because the policy cash value exceeds the $2,000 limit,” she said.

“Term life insurance cannot be cashed out and thus has no value,” Callahan said. “Therefore, it is not a countable asset under Medicaid rules.”

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