1. Peggy MacePRO
    COO and Senior Agent, Outlook Life, All 50 States
    Medicaid allows persons going through a Medicaid spend down to hold onto a certain number of assets ($2,000 for an individual, much higher for a couple.) $1,500 of life insurance cash value in one policy is allowed in addition to that $2,000 limit. 

    Let's assume you are a widowed female in a nursing facility and your private funds are dwindling, so you are getting ready to go on Medicaid to pay your living and health care expenses. You have a life insurance policy with $10,000 cash value. What will happen to it?

    1) You are allowed a final expense policy, so you could  possibly assign that over to a funeral home or put it in a irrevocable trust to be used for funeral expenses. This would most likely be a feasible choice if the face amount of the policy is $15,000 or under.

    2) If the face amount is much larger than the cash value, you might be allowed to take a loan against your policy to get the cash value under the allowed amount, then use the loan to pay for your nursing home costs. That way you can still preserve your policy, even though you will be paying interest on the loan.

    3) In this example, there is no spouse, but if there was, you could transfer the ownership of the policy to your spouse, as long as it was compliant with Medicaid rules. If you have a disabled child, the policy could be transferred to a trust for them.

    4) You could convert your life insurance policy to a Long Term Care Benefit Plan that will enable you to keep a portion of the death benefit while legally using the policy to pay for your long term care costs.

    5) You could liquidate the policy and spend the cash on purchasing an allowable funeral policy or on your medical care.
    Answered on June 10, 2013
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