Life Insurance and Eligibility
Will Your Life Insurance Policy Affect Medicaid Eligibility?
Life insurance is a common way to provide financial security for loved ones after death. But depending on the type of policy and its value, it can also impact whether you qualify for Medicaid long-term care benefits — potentially leading to a denial if it pushes you over your state’s asset limit.
Which Life Insurance Terms Matter for Medicaid?
Cash Value / Cash Surrender Value
Permanent life insurance (like whole life) accumulates a cash value. This amount can be borrowed against or collected if you terminate the policy — minus any surrender fees. Medicaid may count this value toward your asset limit.
Face Value / Death Benefit
The face value is the amount paid to your beneficiaries when you pass away. Most states exempt whole life policies with a combined face value under $1,500, though some states allow more.
How Does Each Type of Life Insurance Impact Medicaid?
Term Life Insurance
Does not count toward Medicaid’s asset limit. It provides coverage for a set period, has no cash value, and cannot be cashed out.
Whole Life Insurance
May count toward the asset limit if the total face value of all policies exceeds your state’s exemption. Above that threshold, the cash surrender value becomes a countable asset.
Burial or Final Expense Insurance
Generally exempt if it can only be used for funeral or burial costs.
What Are the Medicaid Asset Limits for 2025?
Most states limit countable assets to $2,000 for a single applicant, but some states have higher thresholds (e.g., NY $32,396; IL $17,500). California has no asset limit.
Can Medicaid Take My Life Insurance Policy?
While you’re alive, Medicaid can’t take your policy. But if your estate is the beneficiary, Medicaid may recover death benefits after your death to repay long-term care costs. To protect the payout, name individual beneficiaries instead of your estate in most states.
How Does the Face Value Exemption Work?
If your combined whole life face value is below your state’s limit, the policy is exempt. If it’s above, Medicaid counts the cash surrender value as part of your assets.
- Example 1: In Illinois (limit $1,500), a $1,200 face value policy with $500 cash value is exempt.
- Example 2: In Texas (limit $1,500), two policies with a combined $2,500 face value and $1,000 cash value mean $1,000 counts toward assets.
Life Insurance Face Value Exemptions by State (2025)
Amount allowed before cash surrender value counts toward assets
| State | Face Value Exemption | Notes / Exceptions |
|---|---|---|
| California | N/A | No asset limit effective 1/1/24 |
| Alabama | $5,000 | |
| Florida | $2,500 | |
| Louisiana | $10,000 | |
| Mississippi | $10,000 | |
| Montana | $5,000 | |
| North Carolina | $10,000 | |
| North Dakota | $10,000 | |
| Rhode Island | $4,000 | |
| South Carolina | $10,000 | |
| All Other States | $1,500 | Standard exemption |
Other State-Specific Life Insurance Rules
- Missouri: Uses cash surrender value ($1,500) instead of face value.
- Pennsylvania: Allows up to $1,000 cash value exclusion if over the face value limit.
- Georgia: Combines burial and life insurance limits (total $10,000).
- Illinois: Allows either $1,500 in life insurance cash value OR a $1,500 prepaid burial plan, but not both.
What If My Life Insurance Will Disqualify Me?
Cash Out & Spend Down
Cancel the policy, take the cash surrender value, and spend on exempt items (care costs, home modifications, debt repayment) to meet Medicaid’s asset limit.
Take a Loan Against the Cash Value
Borrowing lowers the cash value but keeps the policy active. You must continue paying premiums, and cash value may increase again over time.
Transfer to a Spouse or Funeral Home
Moving ownership to a non-applicant spouse counts toward their CSRA. Transferring to a funeral home for a prepaid, irrevocable plan makes it exempt.
Sell the Policy
Options include selling to a family member at cash value, doing a life settlement, or converting to a long-term care benefit plan. Cash proceeds must be spent down to qualify.
