Can Medicaid Take Your Life Insurance?
As Americans live longer, chances are good that many of us will need long-term care. If you or a loved one move into a nursing home, the price tag can be overwhelming: A private room in a nursing home costs an average of $8,821 per month.
Considering this number, you may be wondering how you’ll pay for it all – and if you’ll have to hand over your life insurance benefits to cover the costs. Here’s what you need to know about nursing homes and life insurance.
Frequently asked questions
- Can a nursing home take your life insurance benefits?
- Can my life insurance policy help pay for a nursing home?
- Can Medicaid or Medicare take your life insurance to cover your nursing home costs?
- Can Medicaid claim your life insurance proceeds?
- Can the government take your life insurance payout after you die?
- Can Medicaid take your life insurance payout after you die?
- Should I assign the benefits of my life insurance policy to a funeral home?
Can a nursing home take your life insurance benefits?
No, a nursing home can’t take your life insurance benefits. When you die, your life insurance payout will still go to the beneficiary named on your policy. A nursing home will not typically have a claim to assets such as retirement accounts, public benefits, or life insurance policies.
This does get tricky if you don’t have a beneficiary listed on your policy, though. In that case, the payout will go to your estate once you die. Debt collectors – like a nursing home – may be able to make a claim that you owed them money, and your payout could go toward paying off those debts (these laws vary depending on the state). All the more reason to make sure your beneficiaries are up to date.
Can your life insurance policy help pay for a nursing home?
Some life insurance policies allow you to access your funds early if you have a terminal illness rider, also known as an accelerated death benefit. This rider allows you to access part of your payout while you’re still alive if you’ve been diagnosed with a serious or terminal condition. You can use those funds for whatever you need, like covering the cost of a nursing home or assisted living facility. The rest of your death benefit will go to your beneficiaries once you die.
Can Medicaid or Medicare take my life insurance to cover my nursing home costs?
Unfortunately, Medicare isn’t usually an option when paying for a nursing home since it currently doesn’t cover long-term care costs, including care at home, in assisted living, or in nursing home settings. Medicaid benefits can cover nursing home care, but you’ll need to meet certain income and resource limits to qualify. Any life insurance you own can affect whether or not you’re eligible.
The Medicaid program covers 72.5 million Americans today, including children, pregnant women, parents, seniors, and people with disabilities. If you’re older than 65, most states use the rules for Supplemental Security Income (SSI), another federal and state-based benefits program, to determine if you’re eligible.
SSI rules state that you can have up to $2,000 in resources, and any income you receive impacts your benefits amount. Certain resources are exempt when considering your eligibility and determining your sources, including life insurance policies up to $1,500. Life insurance policies larger than $1,500 could count toward your resources and affect your eligibility.
Can Medicaid claim your life insurance proceeds?
Medicaid won’t take your policy from you, but owning life insurance over a certain amount could mean you’re ineligible for full or partial benefits.
If you have a permanent life insurance policy that has built up cash value, that policy typically counts against your Medicaid eligibility if it’s worth over a certain amount. For states that follow SSI rules, that amount is $1,500.
Medicaid looks at the type of life insurance that you own to determine if it’s part of your resources. Here’s how it looks at different types of policies:
- Term life: Only have a term life policy? It won’t count against your Medicaid eligibility since these plans don’t build up cash value. Term life is not considered an asset.
- Permanent life: Medicaid looks at the face value (amount of the death benefit) and cash value (the amount you can borrow from the policy now) of permanent life policies. Any permanent policy above the state’s resource limit, including final expense insurance, can count against your eligibility.
Since Medicaid is a joint federal and state-run program, the rules are different in each state. Find out about the Medicaid program in your state here.
Can Medicaid take your life insurance after you die?
No, Medicaid can’t take your life insurance benefits or payout. Your life insurance payout will be given to the beneficiary named on your policy, and Medicaid has no claim to any of your assets. If you name a specific person as your beneficiary, then nobody can claim the payment other than your beneficiary.
But there’s a loophole: If you haven’t named a beneficiary, then any life insurance proceeds will go toward your estate once you die. That means debt collectors could make a claim on them to repay any debts you owed when you died. That’s why it’s so important to name a beneficiary.
Make sure that your beneficiary stays up to date (e.g., your beneficiary isn’t a spouse who recently passed away) to ensure that your payment will go to your chosen beneficiary. In most cases, updating a beneficiary is as simple as filling out a form with your life insurance company.
Can the government take your life insurance payout after you die?
Just like Medicaid, other government programs can’t take your life insurance death benefit once you die. Your life insurance payout will be given to your beneficiary, as long as you name a beneficiary on your policy.
Should I assign the benefits of my life insurance policy to a funeral home?
If you’re planning to enter a long-term care facility, reviewing your life insurance ahead of time can help make sure that your policy does what you originally intended: cover your family’s expenses once you’re gone. Your options can include:
- Transferring the policy to your spouse
- Creating a special needs trust for your policy
- Assigning the benefits to a funeral home to cover final expenses
There are lots of rules surrounding transfers like these, so talk to an attorney or estate planner to make sure your transfers are handled appropriately.
Have more questions about life insurance?
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At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible.