In our Medicaid planning practice at Asset Protection & Elder Law of Georgia, clients often ask whether life insurance affects Medicaid eligibility in Georgia. Sometimes it does — and other times it does not. If it does, you can address the issue.
If you have life insurance, the type of policy is a factor in determining whether the life insurance affects your Medicaid eligibility in Georgia. Your policy probably is one of two basic types: permanent life insurance or term life insurance. Permanent life insurance policies come under different names, including whole or ordinary life, universal or adjustable life, and variable life.
A term life insurance policy provides a death benefit to your beneficiaries if you die within a specified term. The policy remains in effect as long as you pay the monthly premiums, or someone else (like an employer) pays them. The death benefit is the only benefit term insurance provides. A term policy has no cash value.
In contrast, permanent life insurance functions as an investment. Like term insurance, the policy provides a death benefit to the beneficiary. Unlike term insurance, a permanent life policy includes a cash accumulation account that pays interest and grows over time. The cash account constitutes the cash value of your policy, which is different from the face value or death benefit value.
If your policy is a term life insurance policy, it does not affect Medicaid eligibility in Georgia. That is true regardless of who pays the premiums.
However, if you have a permanent life insurance policy, the policy may affect your Medicaid eligibility.
To qualify for Medicaid in Georgia (and in many other states), your assets must be less than $2,000. Certain assets are exempt from the calculation.
Life insurance policies with a face value (death benefit) less than $1,500 are exempt from the asset calculation. In addition, the State of Georgia allows an individual to have either a life insurance policy or burial policy with a cash value of $10,000 and still qualify for Medicaid benefits.
Taken together, these rules mean that your life insurance policy affects Medicaid eligibility if either of these things is true:
There are several options available when a life insurance policy puts you over the Medicaid asset limit. Which option is best for you depends on your circumstances. Talking with an experienced elder law and Medicaid planning attorney is highly recommended if your life insurance may affect your Medicaid eligibility.
A few words of caution are necessary regarding options for addressing issues with life insurance and Medicaid eligibility. Before you take any steps, you should talk with a qualified elder law and Medicaid planning lawyer.
First, you should make sure that your policy does affect your eligibility. If it does, your attorney will help you find the best solution for your circumstances. Attempting to navigate Medicaid issues on your own can lead to devastating financial results for you (and for your spouse, if you are married).
With that precaution in mind, there are several different options available for resolving issues when life insurance affects Georgia Medicaid eligibility.
Putting your policy in an irrevocable trust can make you eligible for Medicaid benefits. If you plan five years ahead, there is no penalty for this transfer.
Creating a carefully drafted trust often is the preferable solution when your policy affects your Medicaid eligibility. An irrevocable trust may have other estate planning benefits as well.
However, an irrevocable trust is not the right approach for everyone and every situation. For this approach to work, the trust must be set up to meet specific criteria. It is essential to consult with a qualified professional before creating an irrevocable trust that will protect your life insurance policy while qualifying you for Medicaid.
You could transfer ownership of the policy to your spouse, to remove the policy from your assets. However, it would still count as part of your spouse’s community resource allowance.
If you take out a loan on the cash value of the insurance policy, the loan reduces the cash value of the policy but preserves the death benefit. Then, you need to spend down the loan proceeds in a Medicaid-compliant manner to reduce your total assets.
There can be significant downsides to taking a loan and spending down the proceeds. You will need to pay interest on the loan. After you begin receiving Medicaid, your allowable monthly income will be a very small amount. Paying the interest could be an unreasonable burden to assume.
This approach is similar to taking a loan, except that you surrender the policy and get the full cash value. To reduce your assets to the level to qualify for benefits, you need to spend down the proceeds in a Medicaid-compliant manner.
Unlike taking a loan, this approach does not leave you with an interest payment to make. However, you give up the death benefit if you surrender the policy.
In our Cartersville elder law practice at Asset Protection & Elder Law of Georgia, we focus on protecting our clients’ assets, whatever their unique circumstances may be. Medicaid planning is an essential part of our services for many clients. If you have questions about your life insurance policy or other questions about Medicaid eligibility in Georgia, we can answer your questions and help you make the right decisions.
We provide elder law services to clients throughout the communities northwest of Atlanta, including in Bartow County, Cobb County, Cherokee County, Gordon County, Floyd County and Paulding County.
Call us at (770) 382-0984 or contact us through our online form.