Will Transfer of Life Insurance Affect Mother’s Eligibility for Medicaid?
I need to sell my mother’s life insurance policy to bring down her assets to qualify for Medicaid, but it doesn’t have enough value to prepay for her funeral. The insurance company told me they can transfer her policy to me and I keep paying on it for coverage of my mother. They have sent me the forms to do so, say they’ve done it before and reassure me it won’t interfere with her qualifying for Medicaid. I feel the insurance company is wrong and that it will disqualify my mother from Medicaid and restart the 5-year clock.
The relevant question is whether your mother’s life insurance policy has any cash value. If so, then if your mother were to transfer the policy to you, she would be transferring her cash value, which could cause a period of ineligibility for your mother before she qualifies for Medicaid. The length of the period of ineligibility is not five years, but is determined based on the actual cash value—the greater the value, the longer the period of ineligibility.
If, on the other hand, the policy has no cash value, then there shouldn’t be any penalty for transferring it to you. In that case, there should be no need for a transfer, since the value of the policy as an asset to your mother should be zero. You might still want to transfer it, not so much as a spend down, but to make sure your payments of the premium are not considered income for your mother. In addition, in some states, the policy proceeds could be subject to estate recovery by Medicaid upon your mother’s death.
Since these rules differ from state to state, before proceeding, I’d recommend asking your state’s Medicaid agency or a local elder law attorney to be certain how the rules would be applied in your state.