Medicaid and Life Insurance: Can You Have Life Insurance While on Medicaid?

Key Takeaway

Medicaid recipients can own life insurance products, but the type and value of policy coverage you have may impact your eligibility. The Medicaid criteria dictate that some life insurance products disqualify the policyholder. It is, therefore, essential to make informed decisions about the most suitable life insurance policy, term, and structure.

Medicaid checklist & life insurance

Medicaid and Life Insurance

More than eighty-five million people are enrolled in Medicaid programs across the US,* accessing help with medical care costs on a low or limited financial income. Each state has its own Medicaid thresholds, which set the maximum you can earn and own and remain eligible to receive Medicaid benefits.

Those receiving Medicaid support may wish to purchase a policy to secure a death benefit for their loved ones. 

Life insurance coverage that includes an account value component could mean you fall outside the relevant Medicaid thresholds. You can have life insurance while on Medicaid but it's crucial to understand the implications and your specific policy. Anyone who holds or is considering purchasing life insurance and is also claiming or intending to claim Medicaid support must evaluate their options carefully.

Understanding How Life Insurance May Affect Medicaid

Life insurance may impact Medicaid because each state sets an asset and income limit. Those limits are the maximum you can earn or own in assets and remain eligible for help with long-term medical costs.

Although the Medicaid limits can vary by state, we advise you to verify the Medicaid financial restrictions depending on where you live.

Some financial assets, including your home, vehicle, and personal items, are excluded when determining whether you qualify for Medicaid services. Other assets, like some insurance policies, are treated as financial assets and will be considered when checking your Medicaid eligibility.

Medicaid Asset Thresholds

The rules and thresholds for Medicaid change from year to year, and the criteria differ based on your age, health status, and whether you have children. To further complicate matters, the asset test can be tricky to apply as it also varies depending on the assets you own and whether they are categorized as ‘countable.’

However, the basic rule for Medicaid planning is that if you own assets above the state threshold, including a cash account value within a life insurance product, you may fall outside the limits and be disqualified for Medicaid services. If you need to confirm the asset limits in your state, you can visit the official Medicaid website for the most up-to-date eligibility information.

Types of Life Insurance and Their Impact on Medicaid Eligibility

We noted that some life insurance policies do not affect Medicaid eligibility. For example, a straightforward life insurance product that covers funeral costs without an account cash value would be unlikely to have any impact on your eligibility.

Term and whole life insurance are the most common types of coverage, and the policy structure will determine your eligibility for Medicaid assistance.

Term Life Insurance Products

Term life insurance will generally not impact whether you qualify for Medicaid. If the insured person passes away while coverage is in force, a death benefit will normally be paid to their named beneficiary, subject to any policy exclusions or limitations.

However, if your term life coverage expires prior to your passing, the policy becomes invalid, and there will not be any insurance benefit payable under that policy. If your term life product does not have an accumulative account value, it will not be counted as an asset and won’t typically affect the Medicaid asset limit.

Whole Life Insurance Products

A whole life insurance policy is more likely to influence your eligibility for Medicaid because it provides permanent coverage that is valid for your entire life. These life insurance products can accrue an account cash value alongside a death benefit.

An insurance policyholder can take a loan against the account cash value or withdraw some of the value they have built up. Although these transactions can reduce the death benefit payable if not repaid, access to further income means the cash value is not exempt from Medicaid asset calculations. However, each state provides exemptions for Medicaid benefits, so you should be aware of the rules in your state. 

How to React if a Life Insurance Product Disqualifies You From Medicaid

There are various solutions if you have a life insurance product and are concerned that it may affect your Medicaid eligibility or if you want to purchase life insurance and protect your eligibility for Medicaid. If you allow your insurance policy accounts to lapse, this could reduce the death benefit payable to your loved ones in the future.

Options for your life insurance policy might include:

  • Planning your policy contributions and withdrawals to avoid tipping over the exemption limit–while noting that drawdowns from your account value could impact the overall insurance coverage
  • Transferring your life insurance to a partner or spouse, making sure their assets remain below the limits (research the limits in your state.)
  • Selecting an alternative insurance product that delivers the benefits you require, such as a term life insurance policy

As always, the right decisions depend on your circumstances, the value of other countable assets, and the thresholds within your state. However, it is well worth reviewing those eligibility limits and taking action to ensure you have adequate life coverage while protecting your entitlement to Medicaid services. If you need assistance in understanding life insurance and Medicaid, you can always discuss with life insurance providers you trust.

Frequently Asked Questions: Medicaid & Life Insurance

Why Does the Account Value of My Life Insurance Product Affect My Eligibility for Medicaid?

Each state imposes an asset limit, which sets the maximum you can own before to be eligible for Medicaid. Since this varies by state, you should research on your own to see what limits are applicable to you.

Can I Apply for Medicaid if I Have a Life Insurance Policy?

You can apply to the Medicaid program whether or not you have a life insurance policy. However, the type of insurance you have and the policy's account value might tip you over the maximum asset value eligible recipients can have.

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The information above is for educational use only and does not represent insurance, tax or legal advice. It is not a recommendation or solicitation to buy insurance. Please talk to your licensed insurance agent for more information about life insurance and your needs. Please consult with the appropriate professional for tax or legal advice. Guarantees are backed by the claims-paying ability of the issuing insurance company.

Article Author: Meredith Bell
Author Bio: Meredith joined Everly in 2022 and has 20+ years of experience in the life insurance industry. She has held various roles in advertising, marketing, communications, sales and distribution support, and product development. Outside of the office, Meredith lives with her daughter Kennedy and their dog Mavis. Meredith enjoys cooking, camping, gardening, hiking, and bourbon (though not always at the same time). She is a live music enthusiast and an avid reader. Her favorite quote is by Thomas Jefferson: "I cannot live without books." Meredith agrees, but would add cheese, movies, and dogs to that list.

Policies are issued by Everly Life Insurance Company (“Everly Life”), Topeka, KS. Everly Life is not licensed in the state of New York and does not solicit or transact business in New York.

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