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Michigan Elder Law Today

Monday, April 25, 2016

Life Insurance and Medicaid Planning

Many people purchase a life insurance policy as a way to ensure that their dependents are protected upon their passing. Generally speaking, there are two basic types of life insurance policies: term life and whole life insurance. With a term policy, the holder pays a monthly, or yearly, premium for the policy which will pay out a death benefit to the beneficiaries upon the holder’s death so long as the policy was in effect. A whole life policy is similar to a term, but also has an investment component which builds cash value over time. This cash value can benefit either the policy holder during his or her lifetime or the beneficiaries.

During the Medicaid planning process, many people are surprised to learn that the cash value of life insurance is a countable asset. In most cases, if you have a policy with a cash value, you are able to go to the insurance company and request to withdraw that cash value. Thus, for Medicaid purposes, that cash value will be treated just like a bank account in your name. There may be certain exceptions under your state law where Medicaid will not count the cash value. For example, if the total face values of all polices owned by the Medicaid applicant are $1,500.00 or less, the cash value is not counted for purposes of Michigan's Medicaid eligibility rules.  If the Medicaid applicant is married, the life insurance of the applicant's spouse also has to be considered.

If the value of the Medicaid applicant's life insurance exceeds the $1,500.00 limit, it may make sense to consider irrevocably transferring ownership of the policy to a funeral home in order to obtain a Medicaid-compliant funeral.

Each state has different Medicaid laws so it’s absolutely essential that you seek out a good elder law or Medicaid planning attorney in determining whether your life insurance policy is a countable asset.


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