While Medicaid is overall beneficial to the grand majority of people, there are complicated rules associated with the program that make it confusing as to whether or not they will take your life insurance after death. How can one plan for the future without being fully aware of what can happen to their life insurance policy? Can Medicaid really take my life insurance policy after I was to pass away? In this article, we will discuss some common concerns about Medicaid and life insurance policies and address some potential questions you may have about Medicaid and your life insurance. To begin, there are two primary concerns about Medicaid and life insurance that individuals commonly are unsure about. These concerns usually pertain to two commonly asked questions by individuals:

  • Can life insurance prevent me from being eligible for Medicaid?
  • Can Medicaid take any of my life insurance proceeds after I was to pass away?

To begin, we will address whether or not life insurance can prevent you from being eligible for Medicaid.

Life Insurance and Being Medicaid Eligibile

medicaid life insuranceWith life insurance and Medicaid, there are two primary issues that come to mind, which are assets and income. These two issues pertain to the following factors:

  • Life Insurance as an Asset and Qualifying for Medicaid – Life insurance qualifying as an asset is entirely dependent on what kind of life insurance that you own. Whether it is a term life insurance policy or a whole life insurance policy can provide two different outcomes. A term life insurance has absolutely no cash value, which will not count as an asset. A whole life insurance policy has a cash value and can count as an asset. If your overall cash value puts assets above the Medicaid resource limit, then that could potentially make you ineligible for Medicaid.
  • Life Insurance Proceeds and Medicaid Benefits – Receiving life insurance proceeds in the past could have potentially made you ineligible for Medicaid benefits – only if the proceeds took you over the income limit. Although there are many types of non-taxable income that did count toward Medicaid/CHIP eligibility before MAGI (modified adjusted gross income), MAGI does not count most non-taxable income, which also includes life insurance proceeds. With that being said, it is hard to determine exactly what the future will hold in terms of assets, income, and Medicare eligibility. This is mainly due to the debatable topic of the Affordable Care Act, which leaves the rules of life insurance and Medicaid in an awkward state.

Life Insurance and Medicaid – Can They Take My Estate Proceeds?

With this being another commonly asked question – yes, Medicaid can take away life insurance proceeds after you pass away. This is if you are 55 years old or older, which then allows the Medicaid program to go ahead and take money from your proceeds and pay back the program for any benefits that you may have received during your lifetime.

This is what they label as “estate recovery” and if Medicaid put down money for you to be within an assisted living facility, then the state program will then require your estate to pay back those funds. You can also expect Medicaid to try and recover other funds from your estate such as any debt from hospital bills, prescriptions, and home-based services. With all of this being said, there are ways to help protect your life insurance policy proceeds from being taken by Medicaid.

How to Prevent Your Life Insurance Policy From Being Taken by Medicaid

The most advantageous option and advice would be to make sure that your estate is not the beneficiary of your life insurance policy. The Medicaid program will seek to take money from your estate, and this cannot be conducted if you choose to change the beneficiary of your policy. Therefore, instead of listing your estate as a life insurance beneficiary, list any individual or individuals that you wish to receive your life insurance policy proceeds.

Also, there are limitations as to what Medicaid can withdrawal from your estate. States can elect not to take money from an estate, which would usually only happen if the state determines that taking money from the estate would lead to hardship on survivors or it is not considered cost-effective to pursue any benefit reimbursement from the estate. Either way, there are ways to protect your proceeds from being taken by Medicaid, in which you list an individual or multiple individuals to receive your proceeds instead of your estate.

While this article can provide insight into any potential questions asked, it is also advised to meet with an elder law attorney before deciding to make any decisions about Medicaid or your life insurance policy. Your state may handle Medicaid different from others, which is why it is a must to meet with someone before making any permanent financial decisions.


  1. My sister in law passed away in June. She was on Medicaid. She had a term insurance policy with no cash value given to her when she retired. Can Medicaid take that policy on estate recovery. There was no beneficiary designated. My wife is the power of attorney. We live in NJ.
    Thank you.

    1. Hi Bob,

      If the estate is the beneficiary of the policy (which is true if no beneficiary is named), it is possible that Medicaid will take the value on estate recovery. Check with a lawyer or CPA to confirm your specific circumstances.

  2. My Mother passed away on August 19th. She was a Medicaid recipient via the Qualified Trust (QIT) program. She had a Group Life Insurance policy with her employer for which I was named beneficiary. I plan to use this money for her burial. If there are any monies left over, will Medicaid request the remaining money if I am listed as the beneficiary? I live in New Jersey. Thank you!

    1. Hi Robin, this is getting away from a life insurance question and into a question of estate recovery laws. Just like with divorce, bankruptcy, court rulings, IRS liens, and other specific legal situations, the rights of certain parties to seize other parties’ assets is highly nuanced and dependent on the exact situation and laws governing them. You will need to speak to an attorney, unfortunately. In general terms, New Jersey does allow for medicare estate recovery, and they may have a right to the money paid out. There are however several exceptions. You can read about estate recover in new jersey here.

  3. I am receiving Medicare and Medicaid i have been informed by life insurance that i will receive a check from my husband’s who passed away 2 yrs ago will it affect my Medicare and Medicaid??

    1. Hi Eugenia. This sounds like a simple question, but it is highly complex. The short answer is, it may affect your benefits. You will need to speak with an attorney about your specific situation.

  4. My sister in law is in a nursing home and is receiving Medi-cal benefits. She has a $10,000 policy that my husband, her brother, has been paying for several years. Her brother is the beneficiary, but not part of her estate, as she has no estate. Can the state of California take the money when she passes away?

    1. Hi Gillian. Since we are not lawyers, we can not provide legal advice on your specific situation. However, you can review the estate recovery laws in California for Medi-cal benefits here As you can see, for members who die after January 1, 2017, recovery will be limited to portions of the estate that pass through probate. Life insurance death benefits with named beneficiaries do not pass through probate, but if no beneficiary was named, it would pass through probate and be subject to estate recovery. Keep in mind that with anything legal, there are exceptions so please consult with an attorney.

  5. If I have a life insurance policy and have medicare & medicaid will they take it from my children who l left beneficiary? I live in NY. Should I put one of my children as ownership?

    1. Hi Paula, you should contact an attorney. In general, your best bet to avoid estate recovery is to name a beneficiary so that the money is not paid directly to the estate. An ownership transfer also may make the payout taxable, which is not ideal. Estate recovery and taxation are two complex fields that require expert advice from someone bound to you as a fiduciary.

  6. My uncle was on Medicaid. He left a life insurance policy to my dad, but he has since passed, which makes me next in line to get it. After his death the state put a lien on his estate, in which he had nothing-no home, no property, no kids or wife, in order to collect money from his stay in a nursing home and care. I wrote a hardship letter and was turned down. The amount is only 14,000. Now they want to take all of it, leaving none for family. I still don’t know how they can take it? They said I could appeal and am looking into it, but it would cost more for an attorney than the money is. Thoughts?

    1. Hi Bill. I wish that I had a better answer for you. If the laws in the state of jurisdiction allow for this type of estate recovery you probably don’t have a case anyway. The difficult part to reconcile is that if your uncle had changed beneficiaries from your Dad to you, it wouldn’t be subject to recovery on his estate. My advice would be to call a highly reputable lawyer and discuss the situation. See if he thinks that you have a chance to win the case, and set a maximum dollar amount that you will be willing to spend to do it. As you say it is a small policy so it probably isn’t worth retaining legal services. You can try to appeal without an attorney since you have nothing to lose. Good luck.

  7. Hi,
    In 2014 I opened a small whole life Insurance policy for my mother. I am the policy owner and she is considered the insured name on the policy. This past spring she became long term care in a nursing home. We live in Massachusetts and from what I am reading online is that Medicare can only use whole life insurance as an asset if my mother was the policy owner. Is Medicaid entitled to the cash value of the whole life insurance policy?

    1. Hi Matt. No, they are not entitled to the proceeds assuming the situation is as you describe.

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