Some life insurance policies are financial products that provide a death benefit to your beneficiaries. However, as you grow older, you may need skilled nursing care. If you lack sufficient funds to pay for this care on a long-term basis, you will have to liquidate your assets before you can receive Medicaid assistance. This could include any cash value in a cash value life insurance policy. If you want to preserve any assets for your future, you must understand how to protect your life insurance from Medicaid.
Contact an attorney specializing in irrevocable trusts. If you are going to set up a life insurance trust to keep assets outside your estate, you must do so at least 60 months prior to applying for Medicaid. The lawyer will help set up the trust and transfer the life insurance into the trust.
Transfer the ownership of the policy to another individual. If you are not using a trust, or do not have a life insurance policy large enough to warrant using a trust, then transfer the ownership of the policy to another person, preferably to any of your children. Again, you must act at least 60 months before applying for Medicaid benefits. To transfer the policy, you must fill out and return a change of policyholder form from your life insurance company.
Convert the policy to universal life with secondary guarantees. If you have no one to give it to, you may convert it to this type of policy. Also called a guaranteed universal life insurance policy, it is not meant to build cash value. Instead, cash value diminishes, but the policy is guaranteed to keep the death benefit in force. You may wish to structure the conversion so the cash value runs out prior to your application for Medicaid. This way, there is no cash value to claim during the application process.
- "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
- "Life Insurance"; Kenneth Black, Jr., Harold D. Skipper, Jr.; 1994
- Caring.com: How long is Medicaid's look back period?