Can You Have Final Expense Insurance While On Medicaid?

In this article, we’ll set the record straight about having burial insurance on Medicaid, including buying a new plan and your options if you have an existing policy.

Can You Have Final Expense Insurance While On Medicaid?

In every state, Medicaid has no rule that prevents an individual from having final expense insurance or any other type of life insurance. Where a final expense policy might cause conflict with Medicaid eligibility is the cash value that accumulates over time.

Final expense insurance, commonly known as burial or funeral insurance, is a type of whole life policy. Whole life is permanent life insurance with fixed premiums and an equity component called cash value. A small portion of every payment is directed to this account, and it typically earns interest as well.

As it accrues, the policy owner can withdraw the cash value and spend on anything. Here is where Medicaid might have an issue. Medicaid considers cash value in a life insurance policy an asset. You cannot have assets above a certain threshold to be eligible for Medicaid. According to the American Council On Aging, $2,000 is the asset limit in most states.

It’s important to note that every state has a life insurance exemption up to a certain coverage amount. In most states, it’s $1,500, but some states have higher exemption amounts (For example, it’s $10,000 in North Carolina). If a policy owner has a life insurance death benefit at or below their state’s exemption amount, the cash value (if any) is excluded from Medicaid’s asset test.

Here’s an example to illustrate how the life insurance exemption rule works. Mary lives in Georgia and has a $1,200 whole life policy with a current cash value of $600. Medicaid cannot include that $600 when calculating her assets because the face value of the policy is below the state’s exemption amount of $1,500.

How To Buy A New Policy And Not Have Issues With Medicaid

When buying a new senior burial insurance policy, you can ensure that you’ll never have an issue qualifying for Medicaid if you designate someone else as the policy owner. An alternate owner can be defined in the application, or ownership can be transferred after the policy has been issued.

For clarification, the owner of a life insurance plan is the individual(s) in control of making inquiries and changes to the policy. In addition, they own any assets (cash value) that might accumulate.

So, if you’re on Medicaid or are concerned that you might one day need to apply for Medicaid, making someone else the owner of the policy will ensure the policy’s assets belong to someone other than yourself. That would shield the policy’s cash value from being included in Medicaid’s asset test. Understand that it does not matter that you’re the person who is insured. What matters is who owns the policy.

It’s vital that children buying burial insurance for parents on Medicaid establish themselves as the policy owner so they don’t void their parents’ Medicaid benefits.

Options If You Already Have A Policy

If you’re on Medicaid and have a funeral insurance policy with existing cash value, Medicaid might ask you for information or request changes to comply with their asset limitations.

If Medicaid wants information about your policy, furnishing them with a copy of the policy won’t help. You need to get current cash value figures from the insurance provider, which a copy of the policy won’t have. Call your insurance provider and request a letter showing the present cash value figures because that’s the data that Medicaid wants.

Regarding an existing policy, you have a few choices to comply with Medicaid’s rules:

• Transfer ownership of the policy to someone else (only pursue this option if you have no current cash value or an amount under the Medicaid limit.)
• Transfer the policy to a spouse who doesn’t need Medicaid.
• Surrender the policy and put the money into an Irrevocable Funeral Trust or pre-paid burial.
• Sell the policy (commonly known as a “life settlement“).
• Take out a loan against the policy to the point where the cash value is below the asset threshold.

Remember, Medicaid’s asset limit is typically $2,000. Also, be wary of Medicaid’s 60-month lookback rule that governs what you can do with existing assets so you don’t void your eligibility.

It’s highly advisable that you speak with your representative, who can guide and advise you appropriately.

Does Medicaid Help With Funeral Costs?

Only Colorado, Indiana, Wisconsin, and Wyoming offer Medicaid funeral assistance, and benefits and eligibility vary. However, most states provide some, albeit very minimal, financial help for needy individuals who cannot afford a funeral.

States won’t offer free or government burial insurance but typically provide a basic cremation (no viewing or other funeral services).

Funeral costs can easily exceed $10,000, which many families cannot afford. As a result, many people are opting for lower-cost options like cremation, green burial, or tree pod burials.

How Choice Mutual Can Help You Buy Burial Insurance Properly When You’re On Medicaid

If you’re on Medicaid and need burial insurance, Choice Mutual can help you buy a policy and ensure it never interferes with your Medicaid eligibility.

We can also help children seeking to buy life insurance for a parent or grandparent and do so in a way that Medicaid won’t take issue with.

We’re an independent agency that represents 20 final expense insurance companies. We’ll compare each company to find you the best price and policy, given your circumstances.

Call us at 1-800-644-2926, and we’ll answer all your questions and guide you through the process. We’ll ensure the policy is set up correctly to comply with Medicaid rules.

Our services are free, and the insurance we help you buy won’t cost more.

Frequently Asked Questions