Haris Ashley
Medicaid eligibility is determined by strict income-based guidelines, which vary from state to state. Whole life insurance, which covers the holder for their entire life and pays out a death benefit to beneficiaries, can impact Medicaid eligibility as it accrues a cash value that may be considered an asset. This cash value can be withdrawn during the policyholder's lifetime and, as such, may be counted towards the asset limit for Medicaid eligibility. However, whole life insurance policies are exempt from Medicaid's asset limit if the total face value of all policies is under a certain value, which varies by state.
Can whole life insurance holders get Medicaid?
| Characteristics | Values |
|---|---|
| Medicaid eligibility | Determined by income and owned assets |
| Whole life insurance | Considered an asset under Medicaid's eligibility guidelines |
| Impact on eligibility | Whole life insurance can impact Medicaid eligibility |
| Face value exemption limit | Varies by state, typically $1,500 |
| Cash value | Whole life insurance accrues a cash value that can be withdrawn during the policyholder's lifetime |
| Partial exemption | Some states allow a partial exemption for applicants over the face value exemption limit |
| Burial insurance | A type of whole life insurance that is exempt from Medicaid's asset limit |
| Medicaid recipients | May have trouble qualifying for certain life insurance policies due to income |
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What You'll Learn
Whole life insurance policies can be counted as assets
Whole life insurance is a type of permanent life insurance that provides coverage for the entirety of a person's life and pays out a death benefit to the beneficiaries when the policyholder dies. Whole life insurance policies also accrue a cash value over time, which policyholders can borrow against or withdraw. This cash value component is what makes whole life insurance policies count as assets.
Whether life insurance is considered an asset or a liability depends on the type of policy one has. Term life insurance, for example, does not accumulate cash value and cannot be cashed out while the policyholder is alive, so it is not considered an asset. Whole life insurance, on the other hand, can be considered an asset because of its cash value accumulation. This cash value can be accessed by the policyholder and, therefore, may be counted as a liquid asset.
The cash value of a whole life insurance policy can be particularly useful during retirement or if one needs emergency funds. It can also help with estate planning and be used to pay off debts. However, it is important to note that the treatment of whole life insurance policies as assets can vary depending on the context. For example, while the cash value of a whole life insurance policy is considered an asset for net worth calculations, it is not counted as an asset on the Free Application for Federal Student Aid (FAFSA).
When it comes to Medicaid eligibility, the treatment of whole life insurance as an asset becomes more complex. While term life insurance is generally exempt from Medicaid's asset limit, whole life insurance can impact eligibility. This is because the cash value of a whole life insurance policy may be counted toward the asset limit, depending on the state and the total face value of the policies. Each state has different asset limits for Medicaid eligibility, and whole life insurance policies with a face value below a certain threshold are typically exempt from the asset limit. However, if the total face value of the policies exceeds the state's exemption limit, the cash value of the policies may be counted as an asset, affecting Medicaid eligibility.
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Face value and cash value impact eligibility
Whole life insurance provides lifetime coverage and pays out a death benefit to beneficiaries when the policyholder dies. This death benefit is known as the "face value" of the policy. Whole life insurance policies also accrue a "cash value" as the holder pays their premiums, and this cash value can be withdrawn during the policyholder's lifetime.
Medicaid has an asset limit, which varies by state, and this asset limit determines eligibility. In most states, the asset limit is $2,000. Some assets are not counted towards the asset limit; they are exempt. This generally includes one's primary home, household items, a vehicle, and personal items.
Term life insurance is automatically exempt from Medicaid's asset limit, as it does not accrue any cash value and cannot be cashed out. However, whole life insurance can count toward Medicaid's asset limit. Whole life insurance policies are only exempt from the asset limit if the total face value of all combined policies is not more than a certain amount, which is typically $1,500 but varies by state. If the total face value of the policies is greater than the state's exemption limit, the total cash value of all the policies will be counted toward the asset limit.
The cash value of a whole life insurance policy can be accessed by the policyholder in a few ways. Policyholders can borrow against the cash value by taking out a loan, or they can terminate their policy and collect the cash surrender value, which is the cash value minus any applicable surrender fees. If the cash value of a whole life insurance policy is counted toward the Medicaid asset limit, these actions can reduce the cash value and bring it below the asset limit.
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State-specific rules and limits
The rules and thresholds for Medicaid vary from state to state and change from year to year. They also differ based on your age, health status, and whether you have children.
Most states set an exemption amount of $1,500 for whole life insurance policies, but some states allow a higher exemption amount. For example, Florida's exemption is $2,500, Rhode Island's is $4,000, and North Carolina's is $10,000. California is the only state without asset limits.
Some states allow for a partial exemption even if Medicaid applicants are over the face value limit. Pennsylvania, for instance, allows the exclusion of cash value up to $1,000 if an applicant’s policy has a face value over the exemption amount of $1,500. Missouri has a unique set of rules, using a cash value exemption of $1,500 and only allowing for the exemption of one whole life insurance policy. Missouri Medicaid applicants cannot exempt both a whole life insurance plan and a burial plan.
Some states only allow a burial policy or a life insurance policy to be exempt, but not both. Some states total the face value of life insurance and burial policies when calculating exemption status. For example, Georgia allows Medicaid applicants to have as much as $10,000 set aside in a burial account, but the total face value of any life insurance policies is added to the burial exemption amount.
If the spouse of a long-term care Medicaid applicant does not require Medicaid, the life insurance policy can be transferred to them. The cash value of the policy would then count towards the non-applicant’s Community Spouse Resource Allowance. In 2025, most states allow the community spouse to retain up to $157,920 in assets.
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Medicaid eligibility and income
Medicaid eligibility is determined by income and owned assets, and the guidelines are complex and vary from state to state and year to year. Most plans require applicants to have less than $2,000 in assets, but this does vary by state. For example, for single applicants in 2025, the asset limit was $32,396 in New York, $17,500 in Illinois, $2,500 in New Hampshire, and $1,600 in Connecticut. California is the only state without an asset limit.
Not all types of life insurance policies impact Medicaid eligibility in the same way. Term life insurance, which covers the holder for a limited time, does not impact eligibility as it is not considered an asset. Whole life insurance, which covers the holder for their whole life, can count toward the asset limit as it accrues a cash value that can be withdrawn during the policyholder's lifetime. Burial insurance, a type of whole life insurance policy that covers burial or cremation costs, does not impact eligibility.
The cash value of a whole life insurance policy can impact Medicaid eligibility. If the total face value of the applicant's whole life insurance policies is less than or equal to the state's exemption limit, the policies are not counted against the asset limit. If the total face value is greater than the state's exemption limit, the total cash value of all the policies will be counted toward the asset limit. The exemption limit varies by state, with most states setting it at $1,500, but some states, like Florida, have a higher limit of $2,500. Some states, like Pennsylvania, allow for a partial exemption for applicants who are over the state's exemption limit.
Medicaid eligibility is also based on non-financial factors, including age, pregnancy or parenting status, and residency. Individuals over 65 or who have a disability or blindness are generally exempt from the MAGI-based income counting rules, with eligibility determined using the income methodologies of the SSI program.
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Burial insurance and whole life insurance
Medicaid eligibility is determined by income and owned assets. Not all life insurance plans impact Medicaid eligibility in the same way. Burial insurance, also known as funeral or final expense insurance, is a type of whole life insurance policy designed to cover funeral, burial, and other end-of-life expenses. It is a more affordable type of insurance available, due to its lower coverage amounts. It is ideal for those who want coverage for end-of-life expenses, including their funeral.
Whole life insurance, on the other hand, provides lifetime coverage and pays out a death benefit to beneficiaries after the insured passes away. It also includes an investment component, which gives it a cash value. These funds may be withdrawn during the policyholder's lifetime and may be considered an asset under Medicaid's eligibility guidelines. Depending on the cash value of a whole life plan, it can interfere with your chances of getting approved for Medicaid.
In most states, whole life insurance policies with a face value of up to $1,500 are exempt from Medicaid's asset limit. If the policy's face value exceeds this amount, the cash value of the policy is counted towards the asset limit. Burial insurance, as a type of whole life insurance, is not counted towards this asset limit. Any insurance policy where the funds can only be used for final/burial expenses is considered exempt by Medicaid.
While term life insurance does not impact Medicaid eligibility, whole life insurance can. Term life insurance covers the holder for a limited period, typically between 10 and 30 years. If the holder does not die during this time, the policy expires and no benefit is paid out. It does not accumulate a cash value and cannot be cashed out, which is why it is exempt from Medicaid's asset limit.
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Frequently asked questions
Yes, whole life insurance can impact Medicaid eligibility as it accrues a cash value that may be considered an asset under Medicaid’s eligibility guidelines. However, whole life insurance policies with a face value of up to $1,500 are exempt from Medicaid’s asset limit in most states.
The cash value of a whole life insurance policy is the amount accrued as the holder pays monthly or yearly premiums. The face value of a whole life insurance policy is the amount paid out to beneficiaries upon the policyholder's death.
In some cases, Medicaid can seek repayment from your life insurance payout through the Medicaid Estate Recovery Program (MERP). This typically applies if you received long-term medical care, had no children or dependents under the age of 21, and your life insurance payout was made to your estate rather than a named beneficiary.
