Burial Insurance for Medicaid Recipients
A common concern brought to us is burial insurance for Medicaid recipients.
People in this category are always worried because burial insurance builds cash value and that is counted as an asset.
And, as beneficiaries of Medicaid will tell you, there are limits to the amount of assets they can have. It varies between states but between $2,000 and $4,000 seems to be the norm.
However, you CAN still purchase a life insurance plan that builds cash value while being on Medicaid and you do not have to worry about it breaking your assets rule.
Burial insurance takes a long time to build cash value
The cash value of a policy is the only thing that is counted as an asset. And that takes a long time to build up.
Burial insurance is a type of whole life policy that earns interest at a rate set by the insurer. It is usually around 2% of your premium.
So, you can see it will take a good amount of time before you would have to worry about the cash value becoming an issue with your asset limit.
You can use the cash value to “get rid of it”
If you do start to get close to your asset maximum, you can do a few things with the cash value to lower it or erase it completely so it doesn’t affect your Medicaid.
Be sure to ask a licensed health insurance agent about your options, but a few things you can do are withdraw the cash, take a loan out against the value, or even use it to pay the premium of your policy!
Most states have a type of exemption
Again, be sure to check with a life insurance agent to see about your state’s rules, but most have established that whole life insurance policies are exempt up to $1,500 in face value. Some have higher exemptions.
Here’s how it works:
If a life insurance policyholder has a face value over the exemption amount, the cash value is a countable asset.
If it is under the limit, the policy is exempt (not counted) against Medicaid’s asset limit.
Here’s a couple of examples from American Council on Aging on the subject:
Bill lives in Illinois and has a whole life insurance policy that has a face value of $1,200 and a $500 cash surrender value. The exemption amount for whole life insurance policies is $1,500 in Illinois. Therefore, Bill’s life insurance policy is not counted towards Medicaid’s asset limit.
Claudia lives in Texas, a state that allows an exemption of up to $1,500 in whole life insurance policies. She owns one policy that has a face value of $1,000 and a cash value of $300 and a second policy that has a face value of $1,500 and a cash value of $700. The combined face value of the policies equals $2,500, putting Claudia over the allowable exemption amount. Therefore, the combined cash value of $1,000 will be a countable asset.
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