Lookback Period, Life Insurance and Eligibility

Last updated: May 13, 2024
Medicaid Long Term Care | Questions and AnswersCategory: EligibilityLookback Period, Life Insurance and Eligibility
medicaidplanner Staff asked 4 years ago

I heard there’s a look back period of 5 years for Medicaid and that you can’t have life insurance valued at over $1,500. If I discontinue my life insurance policy, will Medicaid “look-back” at that and not accept me?

1 Answers
medicaidplanner Staff answered 4 years ago

No, the sole act of discontinuing (cancelling) your life insurance policy is not a violation of Medicaid’s Look-Back Rule and will not result in Medicaid disqualification.

Let’s back up a bit: Medicaid has an asset limit for long-term care Medicaid eligibility. Asset limits vary by state, but regardless of the state in which one resides, some assets are not counted towards Medicaid’s asset limit. Generally speaking, states allow whole life insurance policies with a face value (death benefit) of up to $1,500 to be exempt. Note that most term life insurance policies are never counted towards Medicaid’s asset limit. Unlike whole life insurance policies, the majority of term life policies cannot be cashed out, which is why they generally don’t count towards the asset limit.

If a Medicaid applicant’s life insurance policy has a face value under $1,500 (this is federal law), it is not counted towards the asset limit. However, if the policy has a face value over $1,500, it will likely be counted as a non-exempt asset unless the state in which one resides allows a higher exemption amount. It is the cash surrender value of the policy that will count towards Medicaid’s asset limit, not the face value amount. More on Medicaid and life insurance policies.

If you have an insurance policy that is not exempt from Medicaid’s asset limit, the best course of action is to cash out the policy and “spend down” the “excess” assets. This is where one needs to be cautious, as giving away assets is a violation of Medicaid’s Look-Back Period. Essentially, if one gives the funds away, such as to an adult child, within the Look-Back Period, a Penalty Period of Medicaid ineligibility will result. Persons can “spend down” excess assets without violating Medicaid’s Look-Back Period by purchasing household furnishings, making home modifications, purchasing an Irrevocable Funeral Trust, or paying off existing debt.

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