Do life insurance proceeds count as income for Medicaid eligibility?

Life insurance death benefits paid directly to a named beneficiary are generally not counted as income for Medicaid eligibility.

However, if the life insurance death benefit is paid to the policyholder's estate instead of a named beneficiary, Medicaid can potentially access those funds through the Medicaid Estate Recovery Program.

While the life insurance death benefit itself is not considered income, the cash value of certain life insurance policies can count as an asset that impacts Medicaid eligibility.

Term life insurance policies with no cash value are typically exempt and do not affect Medicaid asset limits.

Whole life insurance policies accumulate cash value over time, and this cash value can be counted as an asset for Medicaid eligibility purposes.

Many states exempt whole life insurance policies with a face value up to $1,500 from Medicaid asset limits, but higher face value limits exist in some states like Florida ($2,500) and North Carolina ($10,000).

Medicaid applicants must strategize carefully about their life insurance holdings, as having policies that exceed the state-specific exemption amounts could disqualify them from receiving benefits.

Transferring ownership of a life insurance policy to someone else, such as an irrevocable life insurance trust, can help protect the policy's cash value from being counted as a Medicaid asset.

Medicaid's "look-back" period means any asset transfers made within the previous 5 years are scrutinized and may impact eligibility, so advance planning is crucial.

Spending down life insurance cash value on qualifying medical expenses or using it to purchase an annuity can sometimes help spend down assets to meet Medicaid eligibility requirements.

The Medicaid Estate Recovery Program allows the government to seek reimbursement for long-term care costs from a deceased Medicaid recipient's estate, including life insurance death benefits that were paid to the estate.

Consulting an elder law attorney is highly recommended when navigating the complex intersection of life insurance, assets, and Medicaid eligibility.