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Medicaid Life Insurance Rules

Is Life Insurance considered a “Countable Asset under Medicaid”?

Here are some guidelines according to Medicaid rules:

  • Term life insurance cannot be cashed out and thus has no value that is not countable.
  • A Medicaid applicant may own one or more small whole life policies. The total combined face value(s) of $1,500 or less is considered “exempt” and will not affect the Medicaid application regardless of the cash value.
  • With the exception of the “exempt” policy(ies), the cash value of any whole life policy is countable. Thus, a policy with a face value of $5,000 and a cash value of $3,500 would disqualify an applicant from receiving Medicaid since the cash value is more than $2,000 maximum limit.
  • Establishing an irrevocable funeral trust can help families qualify for Medicaid.  As it is a trust and irrevocable, it is not counted as an asset by Medicaid. Nor does creating such a trust violate the 60-month past asset transfer (“lookback”) rule. In New Jersey a Funeral Trust can be set up for up to $15,000 per spouse for a maxium of $30,000 any remainder funds can be passed on to beneficiaries.