by dbstevens04 » Mon May 06, 2013 06:00 pm
As power of attorney for my elderly, ill parent (insured), I was required to request Cash Value of his life insurance policy to obtain Medicaid assistance. The insured died 2 weeks before the company issued and mailed the Cash Value check . The check was made out to POA (which ends at death). Can I request the Death Benefit since Cash Value ceases to exist as soon as the owner of the plan expires?
Posted: Wed Jun 12, 2013 03:08 pm Post Subject:
The policy was surrendered for its cash value. No death benefit is payable.
The timing of the death and the timing of the surrender is the only important thing, not the date the check was written. Because the policy ended upon surrender, no claim for death benefits can be made.
The real problem you have is that you followed someone's advice to surrender the policy rather than take a loan or withdrawal of the necessary amount of money to meet the Medicaid spend down test. A cash value policy can be kept with up to $1500 in residual cash value.
For example, a policy could be valued at $1,000,000, but have only $3000 in cash value. Borrowing or surrendering just $1500 is all that would be needed to pass the spend down test. If the insured later dies, the policy would pay the $1,000,000 death benefit minus the amount of the surrender or loan (plus interest).
You might be able to sue the person who gave you the bad advice, but that suit would probably go nowhere.
Posted: Thu Jun 13, 2013 11:09 pm Post Subject:
Max, Prior to authorization of benefits, can Medicaid force someone to surrender a life insurance policy? I know they usually request cash value and face value information but I was unaware of any requirement to actually surrender a policy.
Posted: Fri Jun 14, 2013 12:40 am Post Subject:
No, they cannot force a full surrender. Federal Medicaid law currently allows the retention of up to $1500 in cash surrender value on a monthly basis (so the policy will not lapse as long as sufficient premium is paid), so they can require a partial surrender or withdrawal, or a policy loan to extract the necessary cash value.
Even if that $1500 were the only amount payable from the policy at death, it would only cover some of the cost of a cremation.
A large trash bag would be much less costly and delivery to the local land fill is free if left at the curb on trash day. There might even be some profit, given Social Security's $255 death benefit if there is a surviving spouse or minor child to receive it.
Posted: Sat Jun 22, 2013 12:13 am Post Subject:
They can't make someone surrender the policy, but owning the policy may make someone ineligible for benefits.
Posted: Mon Jun 24, 2013 04:14 pm Post Subject:
owning the policy may make someone ineligible for benefits.
It is not the mere ownership of life insurance that causes Medicaid ineligibility, it is the CASH VALUE that is the problem. When the policy is owned by either husband or wife, but on the life of the person trying to qualify for assistance from Medicaid, the cash value is a "countable asset" that must be used toward the "share of cost" expenses.Until the cash value is at or below $1,500, it will prevent the person from qualifying for Medicaid. You cannot simply put the policy into a trust to get it out of the "countable assets" column. The rules were changed 7 or 8 years ago and require the sale/exchange/transfer of assets to be completed 60 months prior to the application date for Medicaid benefits.
Without that, the transfer is disallowed and the person will not qualify.
Posted: Thu Jun 27, 2013 06:22 pm Post Subject:
Max, that is why I said "may". The $1,500 cash surrender value is what makes it a countable asset. Just because it is worth $1,500 doesn't mean that one won't qualify.
I thought that the only thing that matters is ownership. You are saying that it is about ownership AND beneficiaries. Do you have a link? I would like to learn more since I may be wrong. Thanks!
Posted: Thu Jun 27, 2013 06:55 pm Post Subject:
You are saying that it is about ownership AND beneficiaries.
What? Where did you get that connection? I never said anything about beneficiaries. It is purely a matter of ownership in the community assets of husband and wife. I thought I made that clear.The only thing that might have confused you was transfer of an asset. That still has nothing to do with beneficiaries, only ownership.
Point me to what you think I said about beneficiaries, because until this response, I never even mentioned the word.
As for your choice of "may", I won't argue about that. But the reality is that ownership of any cash value policy with more than $1500 of available cash value will violate the monthly spend down test (which includes the nonforfeiture value of an ROP Term policy, too). Will they measure it monthly? I doubt it, since the values are only reported annually (maybe quarterly in a VUL or VL policy). But they could take that annual report and factor it backwards.
I don't personally have knowledge as to how they actually do that (and who knows, each examiner may do it differently), because I'm sure many people panic, like the OP did, and simply surrender the policy in error, and don't have to account for CV in the future.
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