Problems with Small Insurance Policies

by Jerrold Bartholomew

Yesterday, I learned of a case where a small insurance policy caused an extended period of ineligibility for Long Term Care Medicaid. This means it will be a long time before the nursing home bill gets paid, if ever.
To understand why small insurance policies can be a problem, one must remember that Medicaid eligibility requires passing an asset test. For single persons (and married couples who are both in a nursing home) this means that the patient must have less than $2,000.00 in assets. This includes the cash value of life insurance policies with a combined face value of more than $1,500.00.
It is very common for seniors to have one more small life insurance policies. These policies are designed to help with the cost of burial, but they will often have just enough cash value to cause ineligibility for Medicaid.To take an example, suppose the nursing home patient has a life insurance policy with a $2,000.00 face value and $500.00 in cash surrender value. Since the face value is more than $1,500.00, the $500.00 cash value will be treated as an asset. When combined with a modest checking account balance of $1,750.00, the applicant would have $2,250.00 in assets–just enough to cause ineligibility.
It is important to understand that surrendering a life insurance policy or taking a loan against its cash value will very often take time and delay qualification for Medicaid. You should discuss all assets with an elder law attorney as part of a comprehensive estate plan in order to avoid delays in Medicaid qualification down the line.


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