There is a difference between being the owner of a life insurance policy and being the insured of a life insurance policy. The owner of a life insurance policy has control over the policy.
Consider all life insurance policies owned by a person applying for or receiving medical assistance and their spouse. Do not consider life insurance policies owned by someone else when the insured is a person applying for or receiving medical assistance.
Life insurance policies owned by a person applying for or receiving medical assistance are either exempt or nonexempt. Exempt life insurance policies are not considered as an available resource when determining eligibility.
Exempt Life Insurance Policies
The following types of life insurance policies are exempt:
- Term policies with no cash value,
- Group policies provided by an employer,
- Policies on the life of an ineligible family member who is not the client's responsible relative,
- An existing life insurance irrevocably assigned to a funeral home or funeral director to fund an irrevocable prepaid burial contract.
Nonexempt Life Insurance Polices
The cash value of nonexempt life insurance policies is considered an available resource when the total face value of the life insurance policies is over $1,500.
Total face value means the sum of the face values of all nonexempt policies owned by a person and/or spouse.
Face Value (FV) is the amount that is contracted for at the time the life insurance policy is purchased. The FV is sometimes referred to as "the amount of insurance". Death benefit is not the face value.
Dividend additions (paid up additional insurance) can increase the FV. Do not include the FV of dividend additions when determining the total face value.
Cash Value (CV), also referred to as cash surrender value, is the monetary value that a life insurance policy acquires over time.
The CV of life insurance policy/s is disregarded when the total face value of nonexempt life insurance policy/s is $1,500 or less.
The CV of life insurance policy/s is counted when the total face value of nonexempt life insurance policy/s is over $1,500.
A loan against a life insurance policy reduces the CV.
Dividend additions can increase the CV. The CV of dividend additions is included when the CV of nonexempt life insurance policy/s is counted towards the resource limit. In other words, include the CV of dividend additions when the total face value of nonexempt life insurance policy/s is over $1,500.
Prepaid Burials funded by Life Insurance
See PM 07-02-08-d for life insurance that is purchased for the purpose of funding a prepaid burial contract.
A person eligible for disability benefits through a health and accident or life insurance policy must apply for the benefits to be eligible for cash assistance.
Disability benefits paid from a life insurance policy are nonexempt income unless they reduce the face amount of the policy.
Transferring Ownership of a Life Insurance Policy
Giving up ownership of a life insurance policy by any means is an action subject to LTC transfer of resource policy. Giving up ownership can mean selling the policy, changing the way the policy is held or gifting the policy. See Transfer of Resource policy to determine if the transfer affects eligibility for LTC services.
- Assignment of a life insurance policy to a funeral home for the purpose of funding a prepaid burial is a transfer. To be considered allowable the life insurance policy has to be irrevocably assigned to a trust and the state named as remainder beneficiary of the trust (not the life insurance policy). Count the CV of a life insurance policy (if applicable) as an available resource when assignment of the policy to a funeral home does not meet prepaid burial funding requirements described in PM 07-02-08-d.
- An irrevocable assignment of a life insurance policy to a funeral home or funeral director to fund an irrevocable prepaid burial contract is an allowable transfer and should be considered exempt.
Eligibility is not affected if the policy being transferred is exempt.