How are Whole Life Insurance Policies Treated When Applying for Medicaid?

 In Long-Term Care Planning


Can a whole life insurance policy owned by a current recipient of Medicaid benefits be transferred or borrowed against in order to avoid becoming ineligible for benefits?


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It can’t be transferred, but it can be borrowed against. Transferring the policy would cause a penalty, postponing eligibility for Medicaid by a period of time based on the cash value of the policy. However, if you were to borrow the cash value, the policy would then have no cash value and no longer would be countable against the Medicaid asset limit. You would have to spend down the borrowed funds, which could be done prepaying for the applicant’s funeral or for anything else he or she may need.

In terms of whether to cash out the policy or borrow against it, the main question is whether there is a significant difference between the cash value and the death benefit. If the cash value is $10,000 and the payment at death is $12,000, it may not be worth maintaining the policy for the extra $2,000. But if the death benefit were $25,000, it would almost certainly be worth maintaining the policy in order to get the extra $15,000 upon the insured person’s death. Just make sure that there is a beneficiary for the policy, so that it’s not payable to the Medicaid beneficiary’s estate.

Related Articles:

Spending Down for Medicaid Eligibility

Will Transfer of Life Insurance Policy Affect My Mother’s Eligibility for Medicaid?

Can You Transfer a Whole Life Insurance Policy and Still Get Medicaid?

Crisis Medicaid Planning Strategies

Showing 2 comments
  • Kris Langstaff

    I live in Ohio. My mother transferred ownership of her whole life policy to me in 2018. The cash value is $27k, and the death benefit is roughly $37k. She is now needing to go into a long-term care facility. What will Medicaid demand be done with the policy? Thank you.

    • Harry Margolis

      All transfers made within five years of applying for Medicaid must be reported on the application. They will cause a period of ineligibility based on the value of the transferred asset, the higher the value the longer the penalty period. In your case, the Medicaid agency will use the cash value, not the death benefit. You have a number of choices, including: (a) pay for your mother’s care out-of-pocket for the period she’s not covered by Medicaid; (b) return the policy to your mother and cash it out to pay for her care; or (c) return $27,000 to your mother. In options b and c, you may be able to borrow against the policy to produce the necessary $27,000 while maintaining the additional $10,000 in death benefit.

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