Lookback Period, Life Insurance and Eligibility

Last updated: June 08, 2020
Medicaid Long Term Care | Questions and AnswersCategory: EligibilityLookback Period, Life Insurance and Eligibility
medicaidplanner Staff asked 4 months 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 months 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. To see asset limits by state, click here. 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.
 
So, 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. On the other hand, 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. To further clarify, it is the cash value of the policy that will count towards Medicaid’s asset limit, not the face value amount. To learn more about Medicaid and life insurance policies, click here
 
Therefore, 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 (60-months immediately preceding one’s Medicaid application in all states but California, which has a 30-month look back), a period of Medicaid ineligibility will be the penalty. Examples of how one can “spend down” excess assets without violating Medicaid’s look back period is to purchase household furnishings, make home modifications, purchase an irrevocable funeral trust, or pay off existing debt. (Learn more about spending down assets here).

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