Life Insurance, Medicaid and VA Pension Benefits

I received an email this morning asking:

Is life insurance a “Countable Asset” towards Medicaid and VA Pension asset limits?

Like the answer to so many questions surrounding Medicaid and VA eligibility, the answer is, it depends!

Generically there are two “types” of life insurance.

  1. Term insurance – which has no value save for the death benefit (although term policies can sometimes be sold!) and,
  2. “Cash value” insurance – which may be of various types but have the feature of a “savings component” which may be liquidated.

Since term insurance has no liquidation value, it is not a countable asset for any public benefit purpose.

A policy with a cash value, however, may be.

With respect to Medicaid and life insurance policies:

  1. To financially qualify for Medicaid long-term care benefits the applicant cannot own more than $2,000 in “countable” assets. If married, the spouse may retain up to an additional $128,640 in countable assets.
  2. If a policy or policies have an aggregate death benefit of $2,500 or less the cash value of the policy or policies will not be countable towards the Medicaid $2,000 asset limit.
  3. If a policy or policies have a death benefit of greater than $2,500 and the cash value of same is greater than $2,000, or causes total assets to exceed $2,000, then there will be a problem with obtaining Medicaid benefits unless some action is taken.
  4. A few ideas – a. transfer ownership of the policy to the spouse (as long as spouse countable assets remain below $128,640), b. keep the death benefit in force and transfer policy ownership to a third party via a Personal Service Contract, c. keep the death benefit in force but reduce the cash value to within program limits via a loan, withdrawal, or partial surrender and transferring proceeds over $2,000 via (b) above, d. surrender the entire policy for cash and transfer as per (b) above, e. sell the policy for the death benefit and transfer assets as per (b) above, f. liquidate the policy via one of the methods mentioned above and “spend down” the proceeds before applying for Medicaid.
  5. Believe it or not, there may be other possibilities depending on family circumstances and the exact nature of the policy.

With respect to VA Improved Pension benefits (sometimes referred to as “Aid and Attendance”) and life insurance policies:

  1. The VA does not look at the assets (or income for that matter) of the claimant and the spouse separately as does Medicaid. Instead, the VA considers the COMBINED HOUSEHOLD assets of claimant with a bright line asset limit of $129,094.
  2. The total of life insurance policy cash values is countable as an asset to the limit above.
  3. There are virtually no techniques available to transfer assets to meet VA Pension financial eligibility requirements without the claimant suffering a “penalty”. In fact, using a transfer technique for Medicaid eligibility like those mentioned above may disqualify a claimant from receiving a VA award.
  4. The interplay between income, assets, and unreimbursed medical expenses that occurs in determining an award may offer some planning opportunities with respect to preservation of policy death benefits as long as values remain within eligibility limits.

Life insurance and its relationship to obtaining (or not obtaining) public benefits is often overlooked when application is being made. Obtaining proper advice is crucial in maximizing what may be a valuable asset.

With over 20 years of experience handling such matters there is virtually no problem I have not solved.

Call with your questions…its free to speak with me…561-306-0220.