Can Medicaid take life insurance from the beneficiary?

Medicaid cannot take your life insurance policy while you are still alive. However, if your estate is the beneficiary of your life insurance policy and you receive long-term care Medicaid benefits, then Medicaid may take your death benefit proceeds to recover those costs.

If you receive any sort of long-term care Medicaid benefits, then after you die, a Medicaid lien attaches to your estate so the state can recover its costs. Medicaid also gets repaid from any first-party special needs trusts you have set up. This means that if you receive long-term care benefits, then you should expect any non-exempt assets still in your probate estate or first-party trusts to be used to payback Medicaid. And this includes any insurance proceeds that end up in your estate or in any revocable living trust.

Thankfully, you can work around that by naming someone other than your estate as the beneficiary of your life insurance policy. As long as you name a different beneficiary for your policy and that beneficiary does not disclaim the gift, then the policy should never enter into your estate. And that means that Medicaid cannot use it to recover costs.

However, you must keep in mind that the cash surrender value of any insurance policy you own is considered an asset during your life. And that asset is countable for Medicaid purposes. In other words, the insurance policy could put you over the asset limit. Thankfully, not all policies count against you. Your policy can have a cash surrender value of up to $2,500 without the policy being counted in Florida. But if the policy is worth any more than $2,500, it is a countable asset. (However, the cash value cannot exceed $1,500 to avoid being a countable asset for Supplemental Security Income purposes.)

If the cash value is too high, then you can potentially take a loan out on the policy to reduce the cash value. Another option is to transfer the policy to your spouse who then uses the “Just Say No” planning strategy to keep Medicaid from counting the spousal assets. You could also cash out the policy and use the money on other exempt assets, like your homestead.

The cash surrender value is something that you only have to worry about if you have a whole life insurance policy. Term life insurance policies have no cash surrender value. Because of this, you are allowed to have an unlimited number of term life policies without being disqualified. But because whole life insurance policies have a cash surrender value, the policies are countable.

If you are trying to qualify for Medicaid or have a loved one that needs to qualify, consider speaking with a Medicaid planning attorney. This is a complex area of law, but it also one with a lot of legal tools that you can use. It can be useful to have a lawyer on your side when the stakes are this high.