Good question. To qualify for Medicaid or Medicare you cannot have more than $2,000 in assets. This is in most states. It is best to check if your state is one of them. This is one issue that many seem to side step. They forget that Medicaid and Medicare can be counted as an asset.
Life insurance falls into 2 categories. There is either "whole life" or "term". The one way it will not count against you is if you have the "term" portion. Term life insurance does not affect your eligibility. Whole life insurance is the one that can be counted against you. This is the one that builds up a cash value and can be counted as an asset.
There is one exception with the "whole" life insurance. Does your policy have a face-value of $1500 or less? It will not be counted as an asset this way. Is it more than this amount? It will be counted as a valued asset.
There are a few options for those whose life insurance cash value will count against them.
- You can surrender the policy and spend the value. This may not be an option for those on a fixed-income.
- You can transfer the amount over to your spouse. This value will no longer be yours. Think long and hard before you do this. This may not be a good option for some of you.
- You can use it to pay for your funeral expenses. This is considered an exempt asset. The funeral home will have control over the money then.
- You could take out a loan on the value. This will greatly reduce the death benefit. It will reduce the cash value too. The upside is that the policy will stay in place.
Talk over any and all strategies with your lawyer and insurance company first.