Can Life Insurance Affect Your Medicaid (MassHealth) Eligibility?
In order to qualify for Medicaid in Massachusetts, which is also referred to as "MassHealth", you can't have more than $2,000 in assets. Many people forget about life insurance when calculating their assets, but depending on the type of life insurance and the value of the policy, it can count as an asset.
Life insurance policies are usually either "term" life insurance or "whole" life insurance. If a Medicaid applicant has term life insurance, it doesn’t count as an asset and won't affect Medicaid eligibility because this form of life insurance does not have an accumulated cash value. On the other hand, whole life insurance accumulates a cash value that the owner can access, so it can be counted as an asset.
That said, Medicaid law exempts small whole life insurance policies from the calculation of assets. If the policy's face value is less than $1,500, then it won't count as an asset for Medicaid eligibility purposes. However, if the policy’s face value is more than $1,500, the cash surrender value becomes an available asset.
For example, suppose a Medicaid applicant has a whole life insurance policy with a $1,500 death benefit and a $700 cash surrender value (the amount you would get if you cash in the policy before death). The policy is exempt and won't be used to determine the applicant's eligibility for Medicaid. However, if the death benefit is $1,750 and the cash value is $700, the cash surrender value will be counted toward the $2,000 asset limit.
If you have a life insurance policy that may disqualify you from Medicaid, you have a few options:
Surrender the policy and spend down the cash value.
Transfer ownership of the policy to your spouse. If you transfer the policy to your spouse, the cash value would then be part of the spouse's community resource allowance. This is the amount of money that the spouse living at home is allowed to keep. In 2017, this amount is $120,900.
If you don't have a spouse, you may be able to transfer this money to a trust for your benefit. It is important to consult with an elder law attorney to explore whether this option may be available to you.
Transfer ownership of the policy to a funeral home. The policy can be used to pay for your funeral expenses, which is an exempt asset.
Take out a loan on the cash value. This reduces the cash value and the death benefit, but keeps the policy in place.
The Boston Elder Law Attorneys at Senior Solutions are ready to help you explore your options. Since, before taking any actions with a life insurance policy, you should talk to your attorney to find out what is the best strategy for you.
Senior Solutions, Attorneys at Law, is an elder law and estate planning law firm serving the Greater Boston and South Shore of Massachusetts. We are caring attorneys, ready to help you. Please feel free to contact us anytime that you have a question related to elder law or estate planning.