Life insurance and Medicaid eligibility

If you qualify for health insurance through Medicaid, you might have an income that disqualifies you from getting a traditional life insurance policy. That's because Medicaid requires you to be under a certain income threshold, while certain life insurance policies could have a minimum income requirement. On the other hand, if you currently carry a life insurance policy with a cash value component, you might not qualify for Medicaid since the investment could put you over Medicaid's asset threshold.

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Can you have a life insurance policy if you're on Medicaid?

Having Medicaid doesn't automatically disqualify you from getting life insurance, but it might indicate that you'll have trouble qualifying for certain life insurance policies based on your income. Each state's Medicaid program has an income threshold you must be under in order to qualify for its health insurance. Because life insurers factor in your income when qualifying you for life policies, it's possible that if you have Medicaid, you might not have a high enough income to qualify for fully underwritten term life insurance and whole life insurance policies.

However, even if you're enrolled in Medicaid and not eligible for fully underwritten policies due to your income, you can likely still qualify for these other life insurance policies:

  • Guaranteed issue life insurance provides a limited coverage amount and is more expensive than traditional life insurance, but your health and income won't be factored into your eligibility. Note that if you die during a defined period at the beginning of a guaranteed issue policy (typically the first couple years), your death benefit will be limited to a return of your premium paid to date plus interest, as described in the policy.
  • Simplified issue life insurance also doesn't use your income or a medical exam when evaluating your eligibility for a policy. It's less expensive than a guaranteed issue policy, and only a little more expensive than traditional policies. However, you may not qualify if you're over a certain age or have certain medical issues, depending on your insurer. Through Progressive Life by eFinancial, you can get a quote in minutes for affordable term life policies, including simplified issue ones.

Can you qualify for Medicaid if you already have life insurance?

If you already carry a life insurance policy and are interested in getting health insurance through your state's Medicaid program, the type of life insurance you have could affect whether you qualify for Medicaid or not. For example, if you apply for Medicaid and your life insurance has a cash value, your life insurance policy's cash value can easily push your overall assets over the Medicaid asset limit.

This would generally only apply to permanent life insurance policies with cash value; term life insurance policies typically don't have cash value and therefore wouldn't be considered an asset that affects your Medicaid eligibility. However, some term policies do have cash value, so be sure to check yours. Learn more about the difference between term and whole life insurance.

Pro tip:

Find out your state's Medicaid eligibility requirements and how they factor life insurance policies into the asset limit. Most states require you to have under $2,000 in assets to qualify for the program. Life insurance policies with a face value of less than $1,500 usually don't have to be factored in.

The impact of Medicaid and life insurance on beneficiaries

Can Medicaid take your life insurance payout from your beneficiaries? In most cases, as long as your life insurance policy's designated beneficiaries are alive and able to file a claim for your death benefit, Medicaid won't have access to your life insurance payout when you pass away.

However, there are some situations where Medicaid can seek a form of repayment via your death benefit through the Medicaid Estate Recovery Program (MERP). The rules differ from state to state, but usually the state can only seek retribution through your policy's death benefit if:

  • You received long-term medical care, such as a nursing home or assisted living
  • Your spouse is deceased
  • You have no children or dependents under age 21 or any children with qualifying physical or mental disabilities
  • Your life insurance death benefit was paid out not to a beneficiary but to your estate

Remember to update your policy's beneficiaries over time as deaths and births occur, and make sure your current beneficiaries know to file a claim with your life insurer when you pass away.

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Please note: The above is meant as general information to help you understand the different aspects of insurance. Read our editorial standards for Answers content. This information is not an insurance policy, does not refer to any specific insurance policy, and does not modify any provisions, limitations, or exclusions expressly stated in any insurance policy. Descriptions of all coverages and other features are necessarily brief; in order to fully understand the coverages and other features of a specific insurance policy, we encourage you to read the applicable policy and/or speak to an insurance representative. Coverages and other features vary between insurers, vary by state, and are not available in all states. Whether an accident or other loss is covered is subject to the terms and conditions of the actual insurance policy or policies involved in the claim. References to average or typical premiums, amounts of losses, deductibles, costs of coverages/repair, etc., are illustrative and may not apply to your situation. We are not responsible for the content of any third-party sites linked from this page.