Will Medicaid Collect Mom's Life Insurance Payout?

by Debbie D.
(Alabama )

Question:

Will Medicaid take my moms term life insurance pay out after she passes to pay for her nursing home stay?

Answer:

In those states that only make recoupment claims against the probate estate of the deceased Medicaid recipient, any life insurance proceeds payable to anyone other than the estate of the deceased would pass outside of probate and therefore not be subject to recoupment by the state. In most states, however, the "estate" is defined more broadly and can indeed include the proceeds of life insurance on the deceased's life.

The question is, who was paying the premiums on the term life insurance while mom was alive? Any income she had would have been required to be paid to her nursing home, so I don't really understand how mom could have continued paying the premiums.

However, if the children or someone else were paying the premiums--to keep the policy in effect--then that would not cause any problems. As a matter of fact, if there is an existing policy and the parent is in poor health, it may make a lot of sense to keep the policy in effect by having the children make the payments on the policy. If the children pay the premiums then clearly there is no gift from the mom to the children, and the value of a term life insurance policy of any amount is never a countable asset for Medicaid purposes.

Even if mom paid the premiums, I don't see it as a gift to the beneficiaries, since the term policy is a non-countable asset owned by mom; she could change the beneficiaries at any time, and even name her own estate, so there is never a completed gift.

You can get similar information at Medicaid Secrets.