Q

Can Medicaid impact your life insurance eligibility?

A

If Medicaid provides your health insurance, you might not be eligible for a traditional life insurance policy due to evidence of insurability.

Medicaid is a government funded program that provides health insurance for low-income Americans, people with disabilities, caretakers, and pregnant people. Because your income impacts whether you qualify for life insurance coverage, some people on Medicaid might not be able to get a traditional life insurance policy.

Conversely, having too much in assets can make you ineligible for Medicaid. If you have a life insurance policy with a cash value feature, it could put you over the Medicaid asset limit. However, final expense life insurance may be an option for Medicaid users who need some life insurance coverage.

Key Takeaways

  • Medicaid provides health insurance for low-income Americans

  • Life insurance companies require a minimum income or assets to be eligible for a policy and people who use Medicaid may not qualify

  • When applying for Medicaid an existing cash value policy can impact your Medicaid eligibility

  • People using Medicaid may qualify for guaranteed issue or simplified issue life insurance

How do Medicaid benefits impact life insurance eligibility?

When you apply for life insurance, an underwriter evaluates your evidence of insurability to determine if you are eligible for a policy. Evidence of insurability is assessed based on your income, financial background, and your beneficiary’s reliance on your financial support.

Life insurance companies evaluate this to make sure your policy is functioning as an income replacement for people who depend on your support, as intended. The life insurance death benefit isn’t meant to increase your family’s wealth.

You must have below a certain amount of income and assets to be eligible for Medicaid benefits. But, the same threshold that makes you eligible for Medicaid could make you ineligible for life insurance . Depending on your income and the insurance provider, you may not qualify for a traditional life insurance policy.

An existing life insurance policy won’t be affected if you apply for Medicaid. As long as you pay your premiums, your provider cannot cancel or change your coverage because of changes to your health or income.

Every insurer has its own minimum earned income and asset requirements. An independent life insurance broker like Policygenius can help you evaluate your options.

Can life insurance coverage impact Medicaid eligibility?

If you have a permanent life insurance policy, it may impact your eligibility for Medicaid. This is because there is a limit on assets you can own to qualify for Medicaid.

Some permanent insurance policies, like whole life insurance, have an investment-like component called a cash value that can be accessed while you’re alive. Because you are able to use the cash value while you’re alive, it’s considered an asset when applying for Medicaid.

→ Learn more about cash value life insurance

How much permanent life insurance will impact Medicaid eligibility?

The total assets you’re allowed to have under Medicaid varies by state, but is usually around $2,000. Whether the cash value of your policy disqualifies you for Medicaid depends on your policy’s:

  • Face value (i.e., the death benefit)

  • Cash value amount

The cash value of a permanent life insurance policy with a death benefit under $1,500 is usually exempt from being counted as an asset (maximums may vary by state). If your policy’s death benefit is above $1,500, your cash value counts toward the $2,000 asset limit .

Term life insurance and Medicaid eligibility

If you have a term life insurance policy in force and later need to apply for Medicaid benefits, it won’t have any impact on your Medicaid eligibility. 

Term life insurance simply pays out to your beneficiaries when you die. Because it doesn’t have a cash value, it’s of little value while you’re alive and therefore rarely considered an asset.

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Life insurance options for people on Medicaid

If you’re ineligible for a traditional life insurance policy because of Medicaid benefits you can still purchase life insurance protection. Guaranteed issue and simplified issue life insurance both nearly guarantee coverage no matter your income and come with no cash value. However, they are more expensive and come with limitations.

Guaranteed issue life insurance

A guaranteed issue life insurance policy offers coverage based on three variables: 

  1. Age

  2. Gender

  3. The state you reside in

It’s optimal for people whose medical or financial history makes them ineligible for a traditional life policy. While applications are generally guaranteed acceptance, the caveat is that you’ll get less coverage for your money (usually up to $25,000 ) than with term life insurance.

Simplified issue life insurance

Simplified issue policies offer slightly more coverage than guaranteed issue (generally up to $50,000 ) at a lower premium than guaranteed issue. However, serious medical conditions like cancer and heart disease may disqualify you from buying a policy. 

Like guaranteed issue, simplified issue policies come with age restrictions. Most policies are only available to those age 45 or older .

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How much does life insurance cost for people on Medicaid?

Because simplified issue and guaranteed issue life insurance approve applicants with more complex health or financial situations, you’ll get a lower death benefit for your money than you’d find in a traditional life insurance policy. 

Here’s how much a 55-year-old non-smoker might pay for each type of policy compared to term life insurance:

POLICY TYPEDEATH BENEFIT AMOUNTGENDERMONTHLY PREMIUM
Guaranteed issue$25,000Male$168.49
Female$128.17
Simplified issue$25,000Male$88.65
Female$69.35
Term life$250,000Male$82.86
Female$59.68

Methodology: Sample monthly premiums are based on 55-year-old male and female non-smokers in Ohio qualifying for a $25,000 guaranteed issue policy from AIG, a $25,000 simplified issue policy from Mutual of Omaha, and $250,000, 20-year term life insurance policy. Term life insurance average is based on a composite of policies offered by Policygenius from AIG, Banner, Brighthouse, Lincoln, Mutual of Omaha, Pacific Life, Principal, Protective, Prudential, SBLI, and Transamerica and may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 3/09/2021.

Note that even though the monthly premiums are similar between term and simplified issue life insurance, the term life policy offers a death benefit 10 times larger .

Can Medicaid programs take the life insurance death benefit from your beneficiary?

After you die, Medicaid can seek financial restitution through something called the Medicaid Estate Recovery Program (MERP). However, your life insurance proceeds are not usually at risk of being taken using MERP.

Medicaid can only take your death benefit using MERP if all of the below are true :

  • Medicaid paid for your long-term-care services (like nursing home care)

  • Your life insurance paid out to your estate instead of to a beneficiary 

  • You have no surviving spouse, children under age 21, or children with disabilities

Your life insurance pays out to your estate if your beneficiaries pass away or are otherwise unable to collect the payout. If you have life insurance and Medicaid, the best way to ensure that the program can’t seek repayment from your death benefit is to keep your policy’s beneficiaries up to date. 

While using Medicaid for healthcare creates additional considerations for buying life insurance and vice versa, there are ways to secure life insurance protection even if you can’t buy a traditional policy. Keep your policy updated and work with an insurance agent or financial professional to make a plan that balances your Medicaid and life insurance needs.

Medicaid and life insurance FAQ:

What happens to life insurance when you go on Medicaid?

If you have an active term life insurance policy and continue paying premiums, your life insurance coverage won’t change. If you have cash value life insurance, your policy may make you ineligible for Medicaid, depending on your accumulated cash value.

Can I buy life insurance if I’m on Medicaid?

Depending on your income, you may not be eligible for a traditional life insurance policy. You likely qualify for more expensive guaranteed issue or simplified issue policies.

Can Medicaid take life insurance proceeds from my beneficiary?

As long as your beneficiary is living when you pass away, Medicaid cannot use your life insurance proceeds to repay any long-term-care expenses they covered for you.