When speaking with groups about Medicaid (MassHealth) planning, I often get asked about life insurance policies and how they will be treated when applying for MassHealth benefits. Many people simply forget about their life insurance policies when planning for long-term care, because it is money you don’t actually see. However, failing to plan ahead with life insurance can have very negative results.
Unfortunately, MassHealth counts any life insurance policy with a cash value as an asset and will make seniors withdraw the cash value and spend it on their nursing home care before Medicaid would kick in. For people with large cash value policies, this is not welcome news.
Luckily, there are ways to protect insurance, such as by transferring them to an Irrevocable Life Insurance Trust (ILIT), which has the added benefit of taking the policy pay out amount out of your estate for estate tax purposes (YES the taxman goes after you there as well).
If you or a family member has life insurance with a cash value, CDs, investments, savings bonds, annuities, or other assets that you want to protect from nursing home poverty, you need to take action as soon as possible due to time period penalties that apply when you attempt to protect assets.