Can you have life insurance while on Medicaid? Life insurance offers peace of mind, especially for older individuals. Many people rely on it to cover final expenses and support their families, even if they also have Medicaid.
Medicaid, which covers medical expenses, may claim any leftover assets from life insurance if no beneficiary is named.
In this article, we’ll explore how Medicaid works, its connection to life insurance, what it can claim, and how this could impact your Medicaid eligibility.
Can You Have Life Insurance While On Medicaid?
Yes, you can have life insurance while on Medicaid, but this type of coverage may affect your eligibility.
Medicaid has stringent income and asset requirements, which tend to support people who have minimal income.
In addition, the kind of life insurance it does will decide if it’s eligible as an asset and if it affects your qualification for Medicaid.
What Is Medicaid?
Medicaid is an initiative program that is organized by the federal government and each state that provides public assistance.
Health insurance benefits are also provided to elderly people, pregnant women, people with disabilities, and low-income families.
Medicaid is currently recognized as the nation’s largest source of health insurance coverage.
Effects On Medicaid And Forms Of Life Insurance
The conditions for qualifying for Medicaid are affected differently by each type of life insurance. However, there are three main types of life insurance that are usually bought. These include burial insurance, term, and permanent life insurance.
Burial Insurance
Burial insurance, also known as final expense or funeral insurance, is a type of whole life coverage that does not affect Medicaid eligibility. It helps cover funeral costs and related expenses.
Also, life insurance policies with funds designated for funeral expenses are excluded from Medicaid’s asset limit.
Term Life Insurance
Term life insurance is known for its fixed coverage period, typically ranging from 10 to 30 years. It only pays out if the policyholder passes away during the term.
Since it doesn’t accumulate cash value, it’s generally not considered an asset for Medicaid eligibility. This type of policy is ideal for people who need coverage for a set period, such as while raising children or paying off a mortgage, without impacting their Medicaid eligibility.
Permanent Life insurance
Permanent life insurance, like whole and universal life insurance coverage, offers long-life coverage. This coverage also gains cash value over time.
Moreover, it offers a savings section that is accessible for policyholders for withdrawal or borrowing.
Furthermore, the cash value can make you ineligible for Medicaid if it surpasses the permitted asset limits.
What To Do If You Are Not Eligible For Medicaid With Life Insurance
Different options can be accessible for individuals whose life insurance policy may disqualify them from being eligible for Medicaid.
Additionally, it’s not a criterion to have coverage over the exempt amount to become eligible for Medicaid.
Also, allowing coverage to expire through non-payment of premiums is not the only alternative, as there are other existing planning strategies. This includes;
Cash Out The Policy
You can get your life insurance policy canceled, get the cash surrender value, and “spend down” the money until your state’s Medicaid asset limit is reached.
People frequently utilize the money to settle debt, pay for long-term care, and/or make home renovations to facilitate aging in place.
With this choice, the life insurance policy expires, and the surviving loved ones do not receive a death payment.
Take A Loan Against The Cash Value
The face value and cash value of a whole life insurance policy decrease when a loan is taken out against it, but the policy still has its functionality.
However, it’s important to keep in mind that if this option is selected, premium payments are still necessary.
Also, a person may discover that they are no longer qualified for Medicaid as the cash value rises over time. It is important to keep an eye on the policy’s cash value when using this method.
Transfer The Policy
Your life insurance policy may not be included in your asset count if you give it to someone else (such as a family member).
This move can have repercussions, such as losing control over the policy and even having to deal with gift taxes.
For individuals who choose to keep the policy in place but must lower their asset levels to qualify for Medicaid, it’s a calculated decision.
Sell The Policy
You may receive a lump sum payment when you sell your life insurance policy that is greater than the cash surrender value but less than the death benefit.
We call this a life settlement. You can pay for critical bills like debt repayment or medical bills with the sizeable amount of money that this choice offers.
This is an excellent choice for those who find the premium payments too high or who no longer require the coverage. However, it requires forfeiting the death benefit and may have tax ramifications.
How To Get Life Insurance And Keep Medicaid
If you have some types of life insurance, you may not be eligible for Medicaid coverage, but there are ways to get both.
Finding out about your state’s Medicaid regulations and how they relate to life insurance is always a smart idea if you want to make sure that you’re making educated decisions about your coverage and financial planning.
Select The Appropriate Kind Of Policy
Getting term life insurance is a smart move because, in most cases, it is not deducted from Medicaid’s asset cap. This kind of insurance doesn’t build up cash value and provides coverage for a set amount of time, so it’s less likely to interfere with your Medicaid eligibility.
Observe The Face Value Of The Policy
Make sure the face value of your permanent life insurance policy stays below the Medicaid exemption limits in your state. That is if you now have or are thinking about getting one. You may not be eligible for Medicaid if the insurance has a comparatively high face value that is paid out after death.
Frequent Evaluations Of Policies
Check your life insurance policy on a regular basis to ensure that you are still eligible for Medicaid. Especially if you have permanent life insurance with a cash value.
Because Medicaid standards and individual situations are subject to change, monthly assessments can help you satisfy the necessary criteria.