04 Oct Will Medicaid try to go after a term insurance policy?

Q. Will Medicaid try to recover the proceeds of a term life insurance policy when a beneficiary is named on the term policy?
— Executor

A. There are lots of rules when it comes to Medicaid.

Medicaid is a federal program that is administered differently from state to state, and that each application is individual and there may be exceptions to these general rules.

There are different rules for married applicants than unmarried applicants, and different rules for applicants with disabled children.

In order to be eligible for Medicaid, an applicant must demonstrate that they have both a medical and a financial need.

With some exceptions, an unmarried individual who is applying for Medicaid cannot have more than $2,000 in available assets.

An asset is considered to be available if it can be converted to cash.

Let’s say that an applicant has a permanent life insurance policy with a death benefit of $25,000, but the policy also has a cash surrender value of $5,000. Because the applicant has the right to surrender the policy in exchange for a lump sum payment of $5,000, Medicaid considers the policy to be an available asset.

If the applicant does not surrender the policy and obtain the cash value, ownership of the life insurance policy will make the applicant ineligible for benefits because the cash value exceeds $2,000.

A term policy, however, does not have a cash value and would not render the applicant ineligible for Medicaid benefits.

Proceeds would be paid to the beneficiary and Medicaid won’t be able to go after it.

But if the beneficiary of the term policy was the estate rather than a named beneficiary, Medicaid indeed would try to recover the funds.

Email your questions to .

This story was originally published on Oct. 4, 2023.

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.