Life Insurance And Section 8: Understanding The Connection

The U.S. Department of Housing and Urban Development (HUD) defines assets as items of value that may be turned into cash. While assets themselves are not counted as income, any income that an asset produces is counted when determining a household's income eligibility for Section 8 housing. This includes projected income from assets. For example, if a tenant living in a tax credit property won a lawsuit and was awarded compensation, they could choose between a structured settlement and a lump-sum payment. The lump sum would count as an asset, whereas the periodic payments would be counted as income.

Term life insurance and Medicaid eligibility

Term life insurance does not impact Medicaid eligibility; it is not counted towards the asset limit. This is because term life insurance does not accumulate a cash value, and therefore cannot be cashed out, so it has no value to the policyholder.

Medicaid is a public assistance program jointly run by the federal government and each state. It provides health insurance benefits to low-income families, seniors, and people who are pregnant or have a disability. To qualify for Medicaid, you must meet strict income limits. In most states, you cannot have more than $2,000 in assets.

When applying for Medicaid, the type of life insurance and the value of the policy can count as an asset, which may affect your eligibility for benefits. Whole life insurance, for example, accumulates a cash value that the owner can access, and so it can be counted as an asset.

However, term life insurance does not impact your eligibility for Medicaid. If you have term life insurance, the policy will not be counted as an asset and will not affect your application.

Whole life insurance and Medicaid eligibility

To be eligible for Medicaid, an individual must meet certain financial requirements, including an asset limit. This limit varies by state and the type of Medicaid Long Term Care program one is applying for. For example, for single applicants in 2025, the asset limit in New York is $31,175, in Illinois it is $17,500, in New Hampshire it is $2,500, and in Connecticut, it is $1,600. Generally, most states have an asset limit of $2,000.

Not all assets are considered "countable" for these purposes. For instance, an applicant's home, car, and personal property are usually exempt. Another exemption is life insurance owned by the elder.

Term life insurance does not impact Medicaid eligibility as it does not accumulate any cash value and cannot be cashed out. Whole life insurance, on the other hand, can impact eligibility. This is because whole life insurance accumulates a cash value that can be borrowed against or cashed out, and so it is not necessarily exempt from Medicaid's asset limit.

In most states, whole life insurance policies with a face value of $1,500 or less are exempt from Medicaid's asset limit. Some states have higher exemption amounts, such as Florida ($2,500), Alabama ($5,000), and North Carolina ($10,000). If the face value of a policy exceeds the exemption amount, the cash value of the policy will be counted toward the asset limit.

It is important to note that the way each state handles life insurance policies and Medicaid eligibility can be complex, and it is recommended to seek the advice of a professional Medicaid Planner or Elder Law Attorney before applying for Medicaid if the applicant has a whole life insurance plan.

Burial insurance and Medicaid eligibility

Burial insurance, also known as funeral insurance or final expense insurance, is a type of whole life insurance policy that covers burial/cremation costs and funeral arrangements. Importantly, it does not impact Medicaid eligibility.

Medicaid is a joint state and federally funded health insurance program intended for people with low incomes and a critical need for medical care. To qualify for Medicaid, there are financial requirements that must be met. There is an asset limit, which varies by state, and some assets are not counted towards this limit. In most states, the asset limit is $2,000, but this can be as low as $1,600 in Connecticut or as high as $17,500 in Illinois.

Exempt assets include one's primary home, household items, a vehicle, and personal items. Burial insurance is also exempt from Medicaid's asset limit. This is because life insurance that is reserved specifically for burial expenses, where the funds can only be used for this purpose, does not count as an asset for Medicaid eligibility.

However, it is important to note that the cash value of a life insurance policy can impact Medicaid eligibility. Whole life insurance policies accrue a cash value, which policyholders can borrow against or cash out. This cash value is counted as an asset and can therefore impact eligibility. To maintain eligibility, the total cash value of all policies must be under a state-specific value. For example, in most states, the exemption amount is $1,500, but in North Carolina, it is $10,000.

If you are buying a new burial insurance policy, you can structure it in a way that guarantees it never interferes with your Medicaid eligibility. You can do this by designating someone else as the policy owner. This way, the cash value of the policy will not be counted as your asset. Alternatively, you can make someone else the owner of the policy, ensuring that the policy's assets belong to someone other than yourself.

If you already have a burial insurance policy and are on Medicaid, you may need to make certain changes to keep your coverage and not void your Medicaid benefits. You could transfer ownership of the policy to someone else (only if the cash value is under the Medicaid limit), transfer the policy to a spouse who doesn't need Medicaid, surrender the policy and put the money into an Irrevocable Funeral Trust or pre-paid burial, or take out a loan against the policy to reduce the cash value below the asset threshold.

Medicaid's asset limit

The asset limit for Medicaid eligibility depends on the state in which one resides. For single applicants in 2025, the following states have the following asset limits: New York ($31,175), Illinois ($17,500), New Hampshire ($2,500), and Connecticut ($1,600). Generally, most states have an asset limit of $2,000. California is the only state without an asset limit (effective 1/1/24).

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.

The Medicaid program uses the term "resources" to mean assets. The program distinguishes between resources and income when determining eligibility and calculating the amount that a Medicaid recipient must contribute to medical expenses.

Countable assets are counted towards Medicaid's asset limit. This includes cash, stocks, bonds, investments, bank accounts (credit union, savings, and checking), and real estate in which one does not reside. In Indiana, an applicant's and their spouse's IRA/401K is counted.

There are also many assets that are exempt (non-countable). Exemptions include personal belongings, household furnishings, an automobile, irrevocable burial trusts, and generally one's primary home.

Life insurance and Medicaid planning

Life insurance policies can impact eligibility for Medicaid Long-Term Care (LTC) programs as all three types require applicants to meet an asset limit to qualify, and life insurance policies can count towards this limit. The three types of Medicaid LTC programs are:

• Nursing Home Medicaid
• Home and Community-Based Services (HCBS) Waivers
• Aged, Blind, and Disabled (ABD) Medicaid

In most states, the individual asset limit for all three types of Medicaid LTC is $2,000 for 2025. This means an individual applicant can only have assets up to this amount to be eligible for Medicaid. For married couples with both spouses applying, the asset limit in most states is $3,000 or $4,000. However, the asset limits can vary by state and by the specific LTC program. For example, in California, there is no asset limit, while in Illinois, the limit is $17,500 for individuals and married couples.

Life insurance policies can be counted towards the asset limit depending on their type and value. Term life insurance does not impact Medicaid eligibility as it does not accumulate any cash value and cannot be cashed out. On the other hand, whole life insurance can impact eligibility as it accumulates a cash value and can be cashed out. In most states, whole life insurance policies with a face value of $1,500 or less are exempt from Medicaid's asset limit. However, some states have higher exemption amounts, such as Florida ($2,500) and North Carolina ($10,000). If the face value of a policy exceeds the exemption amount, the cash value will be counted towards the asset limit.

If you have a life insurance policy that may disqualify you from Medicaid, there are several options to consider. You can cancel the policy, collect the cash surrender value, and spend down the cash until you meet the Medicaid asset limit. Another option is to take out a loan against the cash value of the policy, which will keep it effective but lower its cash and face value. It is important to note that you still need to pay the premiums when taking out a loan against the policy. Additionally, you can transfer the policy to a non-applicant spouse, which would count towards their Community Spouse Resource Allowance.

The impact of life insurance on Medicaid eligibility can be complex and vary by state. It is recommended to consult a professional Medicaid Planner or Elder Law Attorney to ensure you understand the specific rules and requirements in your state.

Frequently asked questions