How Life Insurance May Affect Nursing Home Medicaid Eligibility
In this article I’m going to be talking about Life Insurance and the connection with nursing home Medicaid qualification. If I identify one issue that confuses most people in the nursing home Medicaid qualification process, it would be life insurance. Life insurance is an after-thought in most cases and people may not even address it if not specifically asked about it. Many people don’t realize that life insurance can disqualify an individual from receiving nursing home Medicaid benefits.
I will address, in detail, the rules pertaining to life insurance and how it effects nursing home Medicaid qualification. By the time you have finished this article, you should fully understand everything you need to know about life insurance. Let’s get started!
For purposes of nursing home Medicaid, you may have up to $2,500 in original face amount of life insurance. This is not each policy but the combined total of all life insurance policies you own. If you have $2,501 or more in original face amount then all cash value in the policy or policies count toward your countable assets for purposes of nursing home Medicaid eligibility. If you have $2,500 or less in total face amount of life insurance, none of the cash value counts toward your countable assets.
What does this mean to you and how does it affect nursing home Medicaid eligibility? There are many different types of life insurance: whole life, term, universal life, variable life, group, indexed life and several more. For the purpose of this writing I am going to focus on two types of life insurance: term insurance and whole life insurance. There are other ways of describing these types of insurance such as cash value building and non-cash value building. I describe whole life insurance as any type of life insurance that builds cash value. Term is any type of insurance that does not build cash value. Term insurance has two categories: actual term life insurance and group insurance. Group insurance for the most part is a death benefit only. It is provided through the company you worked for and is usually only $5,000 to $10,000 after retirement. Sometimes, if you are a member of a credit union, you may have a small amount of death benefit such as $1,000. The premiums are generally paid for by the employer or institution and except for the group certificate, there is not even a policy. Actual term life insurance is a policy that is purchased and is usually for a specific period of time, a “term.” This can be annually renewable, five year term, ten year term, twenty year term and sometimes even a thirty year term. Premiums are based on a person’s health and age. You only pay for the cost of insurance for the period of time you are insured so there is never any cash value to build up. The cost of insurance is quite inexpensive during a person’s younger years but as they get older, term insurance becomes very expensive. For this reason people in their senior years almost never have term insurance except for the group benefit.
Cash value building or whole life insurance is purchased for the entire life of the insured so premiums are based on the persons “whole life.” Because of this, in the early years the premiums are over-inflated and in the later years, under-inflated. Because of this you are paying more for the insurance in the earlier years so this money is put aside in an account. This account builds with interest and creates cash value. Depending on the premiums you are paying, the company and the type of insurance you are purchasing, this cash value can grow substantially. This gives you several options such as allowing the cash value to cover the premiums or even withdrawing money for living expenses.
Most seniors have whole life insurance but usually the amount of insurance is not substantial. The majority of the time we see policies from $500 to about $5,000. There are exceptions but this is the norm.
With whole life insurance the cash value always has to be less than the face amount of the policy. The percentage difference between cash value and face amount varies with age. The older a person is the closer the cash value can be to the face amount of insurance. As the cash value of the policy builds up over the years the death benefit will also increase. You may have a whole life policy where the original face amount was $2,500. Because the policy holder has been paying on the policy for the last fifty years, the cash value has grown to $6,000- $8,000 or more. This also means that the face amount of the life insurance has grown as well. It will always be higher than the amount of cash value.
How does this affect nursing home Medicaid eligibility? Remember, you can have up to $2,500 of original face amount of life insurance and none of the cash value will count towards the countable assets. The policy could have grown to $10,000 and it won’t be considered a countable asset for purposes of nursing home Medicaid qualification. However, if you had a $3,000 policy with $1,500 of cash value, all of the cash value counts toward the countable asset limit with respect to the nursing home Medicaid application process. On the other side of the coin, if a person had a million dollar term life insurance policy, since there was no cash value, the policy would not keep the person from qualifying for nursing home Medicaid.
I hope this has been helpful in understanding more about life insurance and how it is viewed with respect to the nursing home Medicaid qualification process. Elder Planning Alliance can help assist you with nursing home Medicaid. We will strategically plan for the preservation and protection of yours or your loved ones’ assets. The nursing home Medicaid specialists at Elder Planning Alliance offer families a free initial consultation. You will be given the peace of mind of knowing that you are acting in the best interest of yourself or your loved ones. For immediate help, please do not hesitate to contact the nursing home Medicaid professionals, toll free, at 1-866-372-2702. We have helped hundreds of families just like yours with asset protection and asset preservation.