When Is Life Insurance Protected From Recovery
There are very strict laws in place that say that life insurance proceeds must be paid to the named beneficiary. Because of this, the program is prohibited from seizing benefits before they reach the hands of the deceaseds loved ones when a life insurance policy is structured properly. Unfortunately, not everyone takes the time to designate beneficiaries appropriately and this could leave proceeds at-risk of being subject to recovery efforts.
The Impact Of Medicaid And Life Insurance On Beneficiaries
Can Medicaid take your life insurance payout from your beneficiaries? In most cases, as long as your life insurance policy’s designated beneficiaries are alive and able to file a claim for your death benefit, Medicaid won’t have access to your life insurance payout when you pass away.
However, there are some situations where Medicaid can seek a form of repayment via your death benefit through the Medicaid Estate Recovery Program . The rules differ from state to state, but usually the state can only seek retribution through your policy’s death benefit if:
- You received long-term medical care, such as a nursing home or assisted living
- Your spouse is deceased
- You have no children or dependents under age 21 or any children with qualifying physical or mental disabilities
- Your life insurance death benefit was paid out not to a beneficiary but to your estate
Remember to update your policy’s beneficiaries over time as deaths and births occur, and make sure your current beneficiaries know to file a claim with your life insurer when you pass away.
Are There Other Recovery Restrictions
While payment for the benefits above can lead to recovery efforts, there are other restrictions that protect enrollees and their family members. Currently, states arent allowed to target assets or trust balances when the following is true:
- Enrollee is survived by a spouse
- Enrollee has living children under the age of 21
- Enrollee has living children who are disabled
- Recovery would make the family suffer an undue hardship
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Where Can You Get Help
If youre receiving public assistance and need assistance navigating the ins and outs of Medicaid and life insurance, an experienced estate planner may be able to help you get the coverage you need to make sure your family is protected. An attorney who specializes in elder law may also be able to Medicaid recipients or potential applicants through the legalities of maintaining life insurance coverage. If you can’t afford to pay a consultant, contact your state Medicaid agency for answers to Medicaid-related questions and help with applying.
Medicaid And Life Insurance
Not all life insurance policies count as assets in Medicaids eyes. The rules state that if the total face value of all life insurance policies an applicant owns is less than or equal to $1,500, then these policies are considered exempt. However, if this total face value exceeds $1,500, then the total cash surrender value of the policy/policies will count toward the $2,000 asset limit.
For example, if your parent owns a $1,500 permanent life insurance policy with a cash value of $800, then it is considered an exempt or non-countable asset. However, if the policy were to have a face value of $1,600 and a cash value of $800, then the surrender value would count toward the $2,000 of assets that Medicaid allows. In this scenario, as long as your parent only had $1,200 or less in other countable assets, they would still pass the asset test for long-term care Medicaid.
But what if an elder owns a term policy with a face value of $100,000? Its completely exempt since, by definition, a term policy has no cash value. Of course, the elder must continue paying the premiums for any kind of life insurance policy to keep it in force. If they do qualify for Medicaid-covered skilled nursing care, then its highly unlikely theyll be able to afford to keep up these payments.
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What Is An Unqualified Asset
Qualified assets are those you can have that dont affect program eligibility. Unqualified assets are those that might impact whether or not youll be approved.
Whether or not youll be eligible for Medicaid with a life insurance plan depends on if the plan has cash value or not.
If youre carrying term life insurance that offers a pure life insurance benefit, theres no effect on eligibility because it has no cash value and cant be classified as an unqualified asset. If, however, theres cash value, a portion of the life insurance can become an asset.
Can Medicaid Take Life Insurance After Death
While Medicaid is overall beneficial to the grand majority of people, there are complicated rules associated with the program that make it confusing as to whether or not they will take your life insurance after death. How can one plan for the future without being fully aware of what can happen to their life insurance policy? Can Medicaid really take my life insurance policy after I was to pass away? In this article, we will discuss some common concerns about Medicaid and life insurance policies and address some potential questions you may have about Medicaid and your life insurance. To begin with, there are two primary concerns about Medicaid and life insurance that individuals commonly are unsure about. These concerns usually pertain to two commonly asked questions by individuals:
- Can life insurance prevent me from being eligible for Medicaid?
- Can Medicaid take any of my life insurance proceeds after I was to pass away?
To begin, we will address whether or not life insurance can prevent you from being eligible for Medicaid.
Don’t Let Life Insurance Affect Your Medicaid Eligibility
On behalf of Ronald Fatoullah & Associates posted in Elder Law on Friday, February 17, 2017.
A life insurance policy is a contract between an individual and an insurance company where the insured pays a premium in exchange for the insurer’s promise to pay a certain sum of money to the designated beneficiaries on the death of the insured.
The two most common types of life insurance policies are 1) term life insurance and 2) whole life insurance. Under both policies, an insured pays a premium during a term of years , and if the insured dies during the term, the insurer pays the death benefit to the insured’s designated beneficiaries. But a whole life insurance policy also has a cash surrender value, meaning that the insured can surrender the policy at any time and receive the cash value of the account, which is largely determined by a number of premium payments made by the insured.
Both types of policies are great estate planning tools. They both pay the death benefit directly to the designated beneficiaries, thereby avoiding probate. Further, such proceeds are not recoverable from the estate by Medicaid, because Medicaid can only recover against assets distributed through the probate process. Despite these benefits, whole life insurance, in particular, can be problematic when it comes to applying for Medicaid.
Find The Right Life Insurance Policy With Selectquote
While Medicaid can make the life insurance process a little more confusing, it is possible to get the financial protection you need for your loved ones. At SelectQuote, well take the time to get to know your needs and situation, and help you find the best life insurance policy options available to you from the trusted carriers we work with.
SelectQuote does not sell Life Insurance in South Dakota.
SelectQuote Insurance Services has no control over rate information posted in the reviews above through Trustpilot. Your plan could vary depending on your age, health, issuing company and other factors. Not available in all states.
*$9/month based on available rates from the life insurance carriers SelectQuote works with for a $250,000 10-year term policy for a 25-year-old female in excellent health.
Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.
Life insurance is subject to underwriting and approval of the application and may incur monthly policy chargesPacific Life Insurance Company’s Home Office is located in Newport Beach, CA.
AIG Companies policies issued by American General Life Insurance Company , Houston, TX. Issuing company AGL is responsible for financial obligations of insurance products and is a member of American International Group, Inc. .
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When States Can Forego Cost Recovery
One situation where a state may “waive recovery” is when the deceased person’s heirs can prove that recovery of Medicaid costs will impose an “undue hardship.” Most states consider undue hardship to be when when the deceased person’s inheritors have limited income and the estate is their sole income-producing asset .
The state must notify the deceased person’s inheritors of its recovery rights and allow them an opportunity to claim an exemption from estate recovery .
A state can also waive estate recovery when it is determined that it would be too expensive to try to collect repayment from the estate. Each state is allowed to establish its own rules on what is not cost-effective.
Can You Get Life Insurance If You Are On Medicaid Or Receiving Ssi
I receive this question a lot, and the short answer is, yes. As mentioned earlier, you can still purchase life insurance if you are on Medicaid and/or receiving SSI.
However, be careful of what you read and hear elsewhere. Many agents will say that Medicaid has no effect on life insurance. On the one hand, this is right. However, on the other hand , Medicaid will disqualify your assistance if you have too much cash value in your life insurance. Theyll essentially say, Hey, Mrs. Jones. Sure, you can keep your life insurance policy. But, youll disqualify yourself from your Medicaid assistance. What do you choose?
Is that what you want? Do you want to disqualify yourself from assistance?
Many agents will say, Mrs. Jones. No need to worry. The cash value grows slowly. You will have nothing to worry about.
This is false and risky.
In fact, the cash value remember, this is considered an asset for Medicaid eligibility can grow rather rapidly.
Check out this real illustration. It is from a conservative carrier. In other words, their cash value typically grows slower than other carriers. Moreover, it is a guaranteed issue life insurance policy. These policies typically have slower cash value growth.
I highlighted an alarming number. In year 7 of the policy, Medicaid will likely disqualify you from aid. So, unless you die before then, youll have a tough decision to make.
Thats unsettling to us. It is why we dont put our clients in that position to begin with.
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Ways To Obtain Life Insurance And Keep Your Medicaid Benefits
Weve briefly discussed Medicaid and eligibility. Medicaid determines eligibility in 2 ways. Medicaid subjects most people to the non-MAGI test which requires spend-down of ones assets and limited income.
As you can surmise, Medicaid eligibility and the spend-down process subject life insurance policies that have a cash value. These policies include whole life, indexed universal life, universal life, variable life any permanent type of life insurance with cash value.
So, what are your options, then? Lets talk about them next.
Can Nursing Homes Take Your Life Insurance From Your Beneficiary
Nursing home care is often one of the largest expenses people experience towards the end of their lives. With costs exceeding $7,000 a month, many people struggle to afford the costs, especially on a long-term basis. Life insurance is one way that people can choose to help their family members cover end-of-life expenses, but you may be wondering, can a nursing home take your life insurance policy payout from your beneficiary if you have outstanding costs? The short answer is no, if you specify a beneficiary, the nursing home cannot take that money. We’re here to break down how life insurance can benefit you and your loved ones after your death and answer any of these outstanding questions.
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Whole Life Insuranceif Structured The Right Way
Whole life insurance is an option.
John. You just said whole life has a negative impact on my Medicaid eligibility!
Yes, that is right. However, a simple solution to this is to have someone else not on Medicaid own the policy. Say a son, daughter, or brother or sister.
Remember, Medicaid looks at ownership. If someone else owns a policy on you, they own the policy. Not you.
The problem is ownership. Most people own their life insurance policies outright. If they need Medicaid, their whole life insurance is subject to the spend-down process.
Now, this is where you should contact a qualified lawyer in your state. However, we discuss a general overview here.
If someone else owns the policy, then that scenario usually keeps you eligible for your Medicaid assistance. Again, speak with a lawyer for specific questions about your state or situation.
As we stated, the issue is ownership. On the life insurance policy, you will be the insured, and someone else will be the owner.
Now, not anyone can be the owner. Typically, an owner should be a trusted loved one like a son or daughter or a sibling.
Carriers look at insurable interest connections for beneficiaries. Insurable interest means the beneficiary will be negatively impacted upon your death. This means the beneficiary should be a loved one, relative, or even a business associate. Death impacts these relationships.
Alternative Life Insurance Options For People On Medicaid
If youâre ineligible for a traditional life insurance policy and you donât have an existing policy, final expense insurance can give you some protection. Guaranteed issue and simplified issue life insurance both offer near-certain approval as long as you can pay the premiums. However, they are expensive and come with age and coverage limits.
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New Texas Law Promotes Using Life Settlements In Connection With Medicaid Planning
Governor Perry has just signed a law that allows Medicaid applicants to sell their life insurance policies to life settlement companies and not jeopardize Medicaid benefits provided certain conditions are met.
Medicaid is a jointly run state and federal health program that often assists with paying the cost of home health care, assisted living and nursing home services. Medicaid is means tested so at the present time if a life insurance policy has a face value of over $1500, then the cash surrender value counts toward the countable resource limit. So, generally, to get eligible for the Medicaid benefit, applicants often cash in their policy, borrow against the policy and buy non-countable resources or pay bills such as the cost of care or sell the policy and then use the proceeds similarly.
If one uses a life settlement, they can use the proceeds for the health care provider of the life insurance policyholders choice. This endorsement of life settlements by the state is with the hope that the policyholders wont simply surrender their policy and get on Medicaid quicker. However, it is this authors opinion that many will simply continue to borrow against the policy and keep the death benefit to the beneficiary of the policyholders choice.
Contact our Dallas office for more information about Medicaid planning 214-720-0102.
How Does Life Insurance Affect Medicaid Eligibility
You may be thinking, How does life insurance play into the Medicaid process?
Well, this is how. In a few ways:
- If you are receiving SSI, or
- You are eligible through other non-MAGI limits, or
- You need nursing home care
The first is through receiving SSI. Yes, generally speaking, if you receive SSI, you qualify for Medicaid. Additionally, if you are eligible through a non-MAGI requirement. In these cases, any cash-value life insurance is an asset for Medicaid.
The third is if you need nursing home care. If you have not adequately prepared for custodial care, youll need Medicaid. In this case, cash-value life insurance is an asset, too.
In terms of life insurance, Medicaid has no problem with your owning life insurance or any other asset in that matter.
The problem becomes in order to qualify for Medicaid , youll need to spend down those assets, typically to $2,000, and/or maintain a low income of less than $2,349/month. Anyone should understand that is poverty level.
Medicaid allows you to keep up to $1,500 in cash value in a life insurance policy. Above that, you need to spend down the cash value.
In other words, having a life insurance policy can affect your Medicaid eligibility. We discuss more next.
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Can You Have A Life Insurance Policy If You’re On Medicaid
Having Medicaid doesn’t automatically disqualify you from getting life insurance, but it might indicate that you’ll have trouble qualifying for certain life insurance policies based on your income. Each state’s Medicaid program has an income threshold you must be under in order to qualify for its health insurance. Because life insurers factor in your income when qualifying you for life policies, it’s possible that if you have Medicaid, you might not have a high enough income to qualify for fully underwritten term life insurance and whole life insurance policies.
However, even if you’re enrolled in Medicaid and not eligible for fully underwritten policies due to your income, you can likely still qualify for these other life insurance policies:
Receiving An Inheritance And Medicaid Preservation
Medicaid recipients must constantly maintain assets below $2,000.00. If their assets ever exceed $2,000 at the end of any calendar month, they will no longer be Medicaid-eligible. So, when someone receives a lump sum inheritance from a recently-deceased family member, the lump sum of money can be most unwelcome. This article will explain what happens when a Medicaid recipient receives an inheritance and what the person about to receive an inheritance can do to preserve their Medicaid benefits.
First of all, the time to speak with an experienced medicaid lawyer is now . This allows your medicaid-planning lawyer to provide you a well thought out plan that can be put in place before the inheritance is received to ensure that all players understand what they need to do and provide for a smooth transition and no loss of benefits.
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