Nursing home care is notoriously expensive, but necessary for countless people. Can a nursing home take from your life insurance policy? The short answer is no—a nursing home cannot directly take your life insurance. However, improper planning could put your policy at risk in certain situations, particularly when qualifying for Medicaid. Here’s how life insurance typically interacts with the cost of long term care.
How Life Insurance Affects Nursing Home Costs
While a nursing home itself cannot claim your life insurance benefits, life insurance can be considered an asset when determining Medicaid eligibility. If you need Medicaid to help pay for long-term care, the value of your policy may come into play.
- Term Life Insurance: Since term policies do not have cash value, they typically do not count as an asset for Medicaid purposes.
- Whole Life and Universal Life Insurance: These policies accumulate cash value, which could be considered an asset. If the total value exceeds Medicaid asset limits, you may be required to cash out or reduce your benefits.
Average Cost of Nursing Home Care By State
| State | Average Monthly Cost (Semi-Private Room) |
| Alaska | $31,512 |
| Connecticut | $13,764 |
| New York | $12,775 |
| Massachusetts | $12,623 |
| Hawaii | $12,501 |
| Delaware | $12,273 |
| North Dakota | $11,978 |
| West Virginia | $11,619 |
| Minnesota | $11,601 |
| New Jersey | $11,254 |
Source: World Population Review.
Medicaid and Estate Recovery
Medicaid has rules regarding estate recovery, which means the state can seek reimbursement for care costs from your estate after you pass away. Life insurance proceeds paid directly to a beneficiary are generally protected from Medicaid estate recovery. However, if the policy is payable to your estate, those funds could be used to repay Medicaid.
Strategies to Protect Life Insurance Benefits
To make sure your life insurance proceeds go to your loved ones rather than being considered for Medicaid or nursing home costs, consider the following strategies:
- Name a Beneficiary: Designating a loved one as the beneficiary prevents the policy from becoming part of your estate and subject to Medicaid estate recovery.
- Consider an Irrevocable Life Insurance Trust (ILIT): Transferring your policy into a trust can remove it from your countable assets, but this must be done well in advance of needing Medicaid.
- Spend Down Assets Strategically: If your policy’s cash value exceeds Medicaid limits, working with a financial advisor to spend down assets in a Medicaid-compliant way can help protect your benefits.
Try Our Online Life Insurance Calculator
Structuring your policy correctly based on your financial situation can help to guarantee that your money will go where you intend.We’re a team focused on making life insurance understandable and accessible for everyone. This includes explaining the fine print and helping our clients find the best policy for their finances. Whether you have never had a life insurance policy before or are reevaluating your options, we encourage you to try our online calculator. It’s free, totally anonymous, and doesn’t even require an email address. See what offers are available to you today.
