Medicaid Asset Recovery: Does Life Insurance Count?

Medicaid does not automatically include life insurance in its asset recovery, but policies with a cash value or a named beneficiary other than the insured's estate can be subject to recovery after the beneficiary's death. If the policy is a term life without cash value and the insured is the only owner, it is generally excluded.

How Medicaid Determines Recoverable Assets

Medicaid's estate recovery program seeks to recoup the cost of long‑term care from the estates of deceased beneficiaries. Recoverable assets typically include real property, bank accounts, and cash‑value life insurance policies that are considered part of the estate.

When Life Insurance Becomes Recoverable

Key factors that trigger recovery are:

• Cash value: Whole or universal life policies accumulate cash value, which Medicaid treats as an asset.
• Beneficiary designation: If the policy names the estate or a minor child as beneficiary, the proceeds may be included in the estate.
• Ownership: Policies owned by the Medicaid recipient or a spouse with community‑property rights are more likely to be subject to recovery.

Exemptions and Protection Strategies

Policies that are term life, have no cash value, or name a non‑estate beneficiary (e.g., a spouse, adult child, or trust) are generally exempt. Converting a cash‑value policy to a term policy, transferring ownership, or naming an irrevocable trust as beneficiary can protect the proceeds.

Comparison Table