submitted by E. Garrett Gummer, III, Esquire, and Maureen L. Anderson, Esquire, www.GummerElderLaw.com
To qualify for Medicaid in Pennsylvania, usually you can’t have more than $2,400 in “countable” assets. When calculating your total assets, many people overlook life insurance, which can count as an asset depending on the type of insurance and the value of the policy.
Life insurance policies are usually either “term” or “whole life.” Term policies won’t affect Medicaid eligibility because they don’t have an accumulated cash value. On the other hand, whole-life policies usually have a cash value that the owner can access, so they may be counted as an asset.
Medicaid generally exempts whole-life policies with a death benefit of $1,500 or less. But if a policy’s face value is more than $1,500, then the policy’s cash surrender value, less $1,000, becomes a countable asset.
Example: A whole-life policy has a death benefit of $3,500 and a cash surrender value of $1,500. Because the death benefit is more than $1,500, the $1,500 cash surrender value, less $1,000, counts toward the $2,400 asset limit.
If you have a life insurance policy that may disqualify you from Medicaid, you have several options, including:
- Surrender the policy and spend the cash value.
- Transfer ownership of the policy to your spouse or to a special needs trust. If you transfer the policy to your spouse, the cash value will be counted among the assets that the spouse is permitted to keep.
- Transfer the policy to a funeral home. The policy can then be treated as a prepayment of funeral expenses, which doesn’t count as an asset.
- Take out a loan on the cash value. This reduces the cash value and the death benefit, but keeps the policy in place.