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.
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.
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.
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.
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.
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.
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.
Medicaid allows anyone to own burial insurance. However, since burial insurance plans are a type of whole life insurance, they will build cash value. Medicaid considers cash value an asset, which can potentially cause an issue with Medicaid eligibility. The best thing to do is name someone else as the policy owner so they own the cash value rather than yourself. In that circumstance, the cash value in a burial policy will not be counted as one of your assets even though you’re the one covered by the insurance.
Medicaid will not stop benefits if you have too much burial insurance. However, burial insurance policies accrue cash value, which Medicaid considers an asset and can conflict with their requirements. If you’re on Medicaid and have any type of life insurance that builds cash value, be careful it doesn’t exceed the $2,000 limit that most states have.
Medicaid will not prevent you from having life insurance. However, it could be an issue if you have or buy a type of life insurance that builds equity (called “cash value”). The problem with cash value life insurance policies is that they can interfere with Medicaid’s asset limits. It’s advisable to speak with a qualified insurance agent who can help you navigate these paradigms to avoid any issues with Medicaid eligibility.
Ferguson Bath, LightBurial insurance is only exempt from Medicaid if the death benefit is below your state’s life insurance exemption limit (typically $1,500 but varies by the state). If you have burial insurance with a coverage amount above your state’s limit, it’s not automatically a problem. The policy will only become problematic if it builds cash value beyond your state’s asset limit (typically $2,000). The cash value in a burial insurance plan is considered a countable asset when Medicaid conducts its asset test to determine your eligibility.