Does having burial insurance or life insurance affect Medicaid eligibility? We get this question often. Medicaid eligibility requirements differ by state, but they all have stipulations about burial insurance and how owning a policy will affect your eligibility.
Do you already have a life insurance policy or you’re considering purchasing one? This beneficial financial protection for your family doesn’t have to get in the way of your Medicaid eligibility.
Read on to find out how Medicaid works with burial insurance and find out if your insurance policy will affect your Medicaid application. We will also give you some life insurance options if you face Medicaid spend down situation.
WHAT IS MEDICAID?
Medicaid is a United States government-created medical insurance program. It provides medical care coverage for low-income individuals and families who do not have coverage under private insurance due to pre-existing conditions.
The federal government established Medicaid for people who could not access affordable medical care. Medicaid is administered at the state level. As of 2018, there are nearly 73 million Medicaid enrollees.
Here are the nationwide Medicaid enrollees by demographic group:
- Children – 45%
- Adults under 65 – 34%
- Disabled People – 14%
- Adults 65 and over 9%
Medicaid is a welfare program, and to qualify for Medicaid benefits, you are only allowed to keep a certain amount of assets.
Individuals who are eligible for Medicaid most of the time don’t have to pay a monthly premium for benefits; however, there are some exceptions. In some cases, people receiving Social Security benefits have a nominal deduction depending on total income and resources, to help supplement the cost of Medicaid coverage.
- Medical coverage includes the most common forms of health care. Medical benefits cover the same health care services covered by Medicare as well as some services that Medicare does not cover.
- Medicaid also pays Medicare premiums, deductibles, and copayments for people who are part of both programs.
- Long-term nursing home care – It pays for medical care for chronic conditions where at least 2 of 6 daily living activities are permanently impaired.
- Long-term, in-home personal care – this particular Medicaid funded program is usually a bit morre relaxed than other regular Medicaid programs.
- Assisted living – in some states, Medicaid can pay some of the cost of assisted living.
People who can qualify for Medicaid include:
- Senior aged 65
- Low-income adults with or without children
- Pregnant women
- Disabled individuals
These people can be eligible for Medicaid, depending on their income and assets. The state determines the limit on how much income and asset a person is allowed to have.
If your total assets exceed the limit, you will be required to spend them down. You can also move them into types of assets (that are considered exempt) before your Medicaid coverage is approved. You must transfer your assets 60 months or 5 years before you apply to Medicaid.
Medicaid looks at three areas related to the applicant’s finances:
- Monthly income
- Countable assets
- Asset transfers made as far back as five years preceding application
Assets are divided into “exempt” and “non-exempt” categories. Exempt assets don’t factor in Medicaid eligibility. Non-exempt are subject to the states “spend down” requirements.
To qualify for Medicaid, your assets should not total more than $2,000 (asset limit varies by the state in which you live).
Exempt assets are not counted for Medicaid qualification. These assets are not included in the countable assets.
Exemption varies from state to state, but generally exempt assets include:
- Life insurance policies with accumulated cash value up to $1,500 – Term life insurance is excluded as an asset.
- Your primary place of residence, but it is subject to equity limits in some states.
- Personal property such as furnishings, appliances, belongings, and household goods – there is a cap on some states on the allowable amount.
- Revocable burial funds with a value of up to $1,500 per spouse. Other irrevocable burial contracts. Burial funds specifically for funeral service cost, transportation of the body, embalming, cremation, clothing, flowers, services of the funeral director and staff.
- An irrevocable contract for burial space items like caskets, vaults, urn, burial plots, headstone, cremation niches, opening and closing of the grave, and memorial park maintenance.
- One automobile, but there is a limit on the market value of the car.
- One wedding ring and engagement ring
- A married couple can keep more assets if one spouse is still healthy and does not need Medicaid. In most cases, they can keep half the assets up to the maximum amount.
NON-EXEMPT ASSETS (Countable assets)
Non-exempt assets are those assets considered as part of your countable assets when you apply for Medicaid. Countable assets will be considered as available to you to use for paying the cost of your medical care.
- Savings accounts, checking accounts and CDs
- Retirement accounts including IRA, 401(k), 403(b)
- Investment accounts like stocks, bonds, and mutual funds
- Revocable trust accounts
- Credit union accounts
- Trust (depending on how they are set up and your access to them)
- Life insurance with cash value
- Cash surrender amount of life insurance with a face value of $1,500 or more
- Annuities that have not annuitized
- Promissory notes
- Second homes and non-business properties
- Automobiles, if more than one is currently registered
- More than one vehicle, boats, RV’s, etc.
- Jewelry and valuable art or collections
- Prepaid funeral contracts that are not irrevocable
- Property other than the primary residence
The Medicaid applicant’s monthly income should not exceed $2,205. The value of your countable assets cannot exceed $2,000, and you must not have any assets transfer within the previous 60 months.
Applicants with assets over the limits are typically denied Medicaid coverage, and their families are left to pay the high cost of a nursing home or care expenses out-of-pocket.
THE IMPACT OF LIFE INSURANCE TO MEDICAID ELIGIBILITY
Life insurance is a great way to ensure your family is financially taken care of after your death. Life insurance policies, depending on the type and the value of it, may impact your Medicaid eligibility and your ability to receive public assistance for long term care at home, in a nursing home, or assisted living facility.
To better understand when life insurance counts as part of your exempt assets and when it does, let’s examine the type of life insurance policies.
MEDICAID AND LIFE INSURANCE POLICIES
Not all types of life insurance policies have an effect t in Medicaid eligibility.
There are two common types of life insurance policies:
Term life insurance is considered non-countable assets or exempt from Medicaid’s asset limit and term life insurance doesn’t impact Medicaid eligibility.
Term life insurance provides coverage for a limited time, typically one year, 10, 20 to 30 years before the policy expires. If you die within the term, a death benefit will be paid out to your beneficiaries. If you outlive your term, the policy terminates, and no death benefit is paid out.
Term life insurance doesn’t accumulate cash value. The policy cannot be cashed out, has no value, and won’t count as an asset. This is the reason why term life insurance is exempt from the asset limit of Medicaid.
If you have term life insurance, it will not affect your Medicaid eligibility.
Whole life insurance policies give you coverage for your entire life and give death benefit payout to your beneficiaries when you pass away. Whole life insurance accrues a cash value, where you can take out a loan against the cash value or cash out the policy.
Since you can take out cash value from your existing policy; it is not exempt from Medicaid’s asset limit.
Whole life insurance policies can be exempt up to specific face value (the amount of exemption varies by state). Depending on the face value of your whole life insurance policy, it can cause Medicaid ineligibility.
BURIAL INSURANCE AND MEDICAID ASSET LIMIT
Most states have a $1,500 asset limit in life insurance face value. But, some states allow a higher face value exemption on life insurance. The state of Florida allows $2,500 exemption, and North Carolina allows a maximum of $10,000.
Refer to the Medicaid website at www.cms.hhs.gov for the current limitations.
If your life insurance face value is over the asset limit in where you live, the cash value of the insurance policy will be added to your non-exempt assets. But, if the face value of your policy is under the exemption limit, the life insurance policy is not counted or exempt for Medicaid’s asset limit.
John lives in California and has a whole life insurance policy that has $1,200 face value and a $500 cash surrender value. $1,500 is the exemption amount for whole life insurance policies in California. Therefore, John’s life insurance policy is not counted towards Medicaid’s asset limit.
Some states allow for a partial exemption even if your face value exceeds the limit. Pennsylvania is one of these states that allows the exclusion of cash value up to $1,000 if your face value is over the exemption amount of $1,500.
Many states allow the face value exemption of several smaller life insurance policies. As long as the combined face value amount of the policies is not greater than the exemption amount for the state in which you reside.
However, some states such as Missouri allows for the exemption of only one whole life insurance policy. Missouri uses cash surrender value instead of face value.
There is a rule in some states about Medicaid applicant having both a life insurance policy and burial account. Illinois allows up to $1,500 life insurance cash value or up to $1,500 prepaid cancellable burial plan.
While the state of Georgia allows applicants to set aside a maximum of $10,000 in burial account, the total face value of any life insurance policies is added to this burial exemption amount. If you reach the burial exemption amount of $10,000, any remaining cash value is counted as an asset and not exempted.
In Missouri, a Medicaid applicant who has a prepaid funeral plan cannot have a whole life insurance policy. You will only have to choose one.
MEDICAID SPEND DOWN RULES
Medicaid applicants must spend down their available assets until they reach the qualifying level, which is $2,000 in most states (qualifying level varies by each state).
Depending on the type of assets you are trying to preserve, the asset transfer must be done 60 months before you apply for Medicaid coverage.
Medicaid application for long-term services and supports will be denied if your assets have been transferred for less than the fair market value within a 60 month period before applying for Medicaid coverage.
To follow the spend-down rules, your life insurance policy would either have to be surrendered for its cash value or converted for its fair market value. And, the proceeds can be used to pay long term medical care.
There are some alternatives to surrendering your insurance policy and spending down to preserve a portion of your death benefit.
Important note about Asset Transfer: Gifting away assets can result in Medicaid penalties because of the “look-back periods” that range between 36 months and 60 months or 5 years depending on the state laws. The transfer of assets for less than its fair market value would not be a viable asset protection solution unless the transfer was made 60 months before you apply for Medicaid.
This look-back period rule also applies to the life insurance policy and other non-exempt assets transfer. Penalties are based on the value of the transferred assets divided by the average monthly cost of care in your geographic area. The cost of care can range from $5,000 to $8,000 per month.
HOW TO SPEND DOWN LIFE INSURANCE FOR MEDICAID
Having a life insurance policy over the exempt amount does not necessarily disqualify you for Medicaid.
You need to implement some planning strategies to meet Medicaid’s asset limit. Having your policy lapse is not the only option and there are other planning techniques you could use.
Here are the things you can do if your life insurance policy will disqualify you for Medicaid:
1. Take a Loan against the Cash Value
If you have whole life insurance with accumulated cash value, you can take a loan against your cash value. It will keep the policy active but will make the face value and cash value lower. If you choose this option, you need to remember that you still need to pay the premiums.
Additionally, the cash value will increase over time; thus, making you ineligible for Medicaid. If you opt for this strategy, you need to monitor the cash value of your insurance policy.
NOTE: Most burial insurance plans have small face amounts and don’t build a great deal of cash value for many years.
2. Cash Out the Policy
You can cancel your whole life insurance policy and collect your cash value. Then, spend down the cash value until you meet the Medicaid asset limit in your state.
For example, you can use the cash value to pay for long-term care, pay off debt, or make home modifications. However, if you opt for this spend-down strategy, your life insurance policy will be terminated. And, there will be no more death benefit of your family.
3. Sell the Policy
When considering Medicaid eligibility with life insurance, the owner of the policy is the one that matters. It doesn’t matter who the insured is or the beneficiary of the policy. You can have a relative or a friend purchase your insurance policy at the cash surrender value, pay the premiums, and keep the insurance policy.
Another way of selling a burial life insurance policy is via a life settlement. You can sell your policy to a third party who will pay a lump sum of cash. In effect, they will take care of paying the premiums and become the beneficiary. Some people choose this option when their life expectancy is less than 20 years.
The cash from selling your life insurance policy can put you in the asset limit. However, you will need to spend down the money. Paying for unpaid medical bills, long-term care, doing some home modification to make aging easier are some of the ways to spend down your assets.
4. Transfer the Policy
If your spouse doesn’t need Medicaid, you can transfer your life insurance policy to them. The cash value of your policy would then count towards your spouse resource allowance. Most states allow the spouse to retain up to $123,600 of assets.
Burial insurance Medicaid and changing ownership of a life insurance policy to an adult child is considered to be a gift and it violates Medicaid’s look-back rule.
Another insurance policy option is to transfer the policy to a funeral home to pay for non-cancellable burial plan. This strategy is exempt from Medicaid’s asset limit.
5. Assign your Insurance Policy to a Funeral Home
You can also assign your final expense insurance policy to a funeral home, assets going toward funeral and burial costs are not counted when determining Medicaid eligibility.
Your life insurance death benefit will go to the funeral home upon your death, and anything left will go to your beneficiary.
Once you have transferred ownership of your policy to a funeral home, the cash value of your insurance policy will not affect your Medicaid eligibility. The face value of your policy will not be counted when determining your eligibility because you no longer own it.
If you are setting up your Medicaid burial insurance to pay for your funeral, be sure to tell your loved ones about the arrangements you’ve made. Tell your family about the funeral home and the funeral director, and be sure your loved ones know where the paperwork is kept.
By communicating with your family, you make it easier for them to handle your funeral and burial arrangements when the time comes.
The rules regarding life insurance and Medicaid eligibility varies depending on the state you reside and nothing in this article is intended to be legal advice.
Seek the counsel of a Medicaid professional planner who knows the rules in the state you live. If you or a loved one has a life insurance policy over the face value exemption, you can use any of these strategies to meet Medicaid’s asset eligibility requirement.
To determine Medicaid eligibility, you must file your application with the local department of social services in the area in which you live.
HOW CAN FUNERAL FUNDS HELP ME?
Trying to find a policy if you need Medicaid eligibility needn’t be a frustrating process; working with an independent agency like Funeral Funds will make the process easier and quicker.
If you have a pre-existing medical condition, let us help you; we will work with you side by side to find a plan that fits your needs.
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We will shop your case to different insurance carriers and get you the best price.
We work with many A+ rated insurance carriers that specialized in covering high-risk clients like you. We will search all those companies to get the best rate. We will match you up with the best burial insurance company that gives the best rate.
We will assist you in securing the coverage you need at a rate you can afford. So, if you are looking for Medicaid funeral insurance, or Medicaid burial insurance, or Medicaid life insurance.
Fill out our quote form on this page or call us at 888) 862-9456 and we can give you an accurate quote.