If the face value of the policy exceeds five thousand dollars, it is essential to determine the cash surrender value of the policy. This amount can differ from the face value of the insurance policy, sometimes dramatically. A policy with a face value of $25,000 may have a cash surrender value of $1,700. The inverse may also be true, in which case the cash surrender value may be much more than the face value. When the life insurance company determines the cash surrender value of a life insurance policy, one of the determinants is whether the premiums are up-to-date or if they are in default (have not been paid). Most life insurance companies provide a table that is issued with the life insurance policy that can help determine the cash surrender value of the policy that was purchased. If you do not have access to such a table you should contact your life insurance company and inquire about obtaining one. The cash surrender value of a life insurance policy can be an important factor in determining one’s Medicaid eligibility.

Remember that Medicaid applicants are allowed to maintain up to $2,000 in assets without incurring any penalties when they apply for Medicaid benefits. In addition to this standard $2,000 allotment, there are some other resources that can be excluded from the eligibility evaluation. For example, burial plans and one motor vehicle are common excluded resources. In addition, a life insurance policy with a certain cash surrender value can be exempted. If the total cash surrender values of all life insurance policies in the name of the Medicaid applicant or worth $5,000 or less, the policy or policies will not counted as resources against the applicant.
 There is yet another exception to life insurance policies pertaining to Medicaid regulations. If an applicant for Medicaid is already a beneficiary of the Supplemental Security Income (SSI) benefits, still referred to as the old welfare program by some, the cash surrender value of any and all life insurance policies in the name of the applicant that may be excluded is capped at $1,500 rather than the standard $5,000. This significant difference is especially important for recipients of SSI benefits who plan to apply for Medicaid benefits to note.

If you are a senior and a prospective Medicaid applicant and you own a life insurance policy, remember that your life insurance policy will be used in Medicaid’s evaluation of your ability to pay for nursing home care. It is also important that you do not own life insurance policies for family members in your name. If a life insurance policy is under your name, the policy will be counted as an asset regardless of who the policy is intended to be used for. In one case that our eligibility consultants worked on, a man who was listed as the owner of a life insurance policy that was actually intended for his son’s use was deemed ineligible for Medicaid benefits. Changing the name of the holder of the life insurance policy is not a wise move, however, because doing so will be considered as a transfer (a gift). For example, a father who changes the name of the owner of a life insurance policy with a cash surrender value of $2,500 from his own to that of his son will essentially just have given a $2,500 gift. Such an action is a cardinal sin under the Medicaid administrative code. A more appropriate decision would be for the son to purchase the life insurance policy from his father at the policy’s cash surrender value.    It is also important to remember that the Medicaid agency will count all life insurance policies held in the applicant’s name in its evaluation of Medicaid eligibility. For instance, if an applicant for Medicaid holds numerous small life insurance policies, the face value of each life insurance policy will be added up and used in the evaluation of eligibility if the total face value is more than $5,000. There is no such thing as a “primary” life insurance policy in the eyes of Medicaid. As is the rule for many areas of the Medicaid eligibility evaluation, everything counts.

This column is one in a series of articles concerning Medicaid eligibility issues. Marlan Golden is an intern with Healthcare Compensation Solutions. Contributing author Thera Herring is a Medicaid Eligibility Consultant with Healthcare Compensation Solutions. The employees of HCS are not attorneys. The information contained in this article is presented as a public service.  The information is provided for educational purposes only and should not be misconstrued as legal advice. Readers who have additional questions concerning the interpretation or application of the law are encouraged to seek experienced legal counsel.   HCS is a private consulting firm that specializes in all areas of Alabama Medicaid Reimbursement and is comprised of a team of retired eligibility employees who bring over a century of combined years of experience in Medicaid eligibility, Social Security, Veterans’ Affairs, and the Department of Human Resources. Please feel free to send in a personal experience regarding Medicaid issues to: HCS, Attn: LTC Planning, P.O. MBox 240515, Montgomery, AL, 36124.