Protecting Your Life Insurance
This edition of the Koldin Law Center E-Newsletter reviews the importance of protecting your life insurance from being lost towards the cost of home care or nursing home care.
All prior newsletters are saved on our website. You can read them by clicking here.
The cash value of your life insurance policy is considered part of your life savings. You will be told by the Medicaid Agency that you must cash in your policy and spend it towards the cost of your care.
Therefore, asset protection options that you may want to consider should include taking steps to protect your life insurance policies that have a cash value.
Life Insurance has 6 main components:
1. Insured: This is the person whose life is being covered and the policy will pay the death benefit to the beneficiary when the insured dies.
2. Death Benefit: This is the amount the insurance policy will pay to the beneficiary when the insured dies.
3. Beneficiary/Beneficiaries: This is who receives the death benefit when the insured dies.
4. Cash Value: This is the amount the insurance policy can be cashed in for if the policy is sold back to the insurance company before the insured dies. Not all Life Insurance policies have cash values. Some policies are called “Term Policies” which typically cover the death of the insured for a set period of time and then terminates if the insured does not die by the end of this period. Term Policies and Group Life Insurance Policies from employment typically do not have cash values.
5. Premium: This is the payment made to the insurance company for the Life Insurance policy. Premiums under the terms of the insurance policy are typically paid monthly, annually, or a one time single lump sum payment.
6. Owner: This is who has the right to (1) cash in the policy if there is a cash value and (2) change the beneficiaries. The owner is also responsible to pay the premiums.
Protecting Your Life Insurance that has a Cash Value
Since the “Owner” of the Life Insurance policy has the right to cash in the “Cash Value” of the policy, the amount of the cash value is considered to be an available asset if the owner or the owner’s spouse requires long term care at home or in a nursing home.
Under the Medicaid law in New York State, a single person must spend his/her life savings, including the cash value of life insurance down to $15,900 before he/she will be eligible to apply for Medicaid. For a married couple, the at home spouse will be allowed to keep an additional spousal resource allowance of ½ of the couple’s life savings, but not less than $74,820 and not more than $130,380 (2021 figures).
For a discussion of the Medicaid eligibility rules and the Medicaid transfer penalty rules, please visit our website by clicking here.
Transfer Life Insurance to an Irrevocable Trust
As discussed in prior newsletters and on the Koldin Law Center website, if you plan in advance, you can protect some or all of your life savings, including your Life Insurance policies, from the costs of long term care and qualify for Medicaid.
The “Owner” of a Life Insurance policy with a cash value can protect the policy by either transferring the ownership of the policy to another person or to an Irrevocable Living Trust. Either of these transfers of ownership will be subject to the Medicaid 5 year lookback transfer penalty period of ineligibility rules.
There are many advantages to transferring ownership of Life Insurance to an Irrevocable Trust rather than to children or other family members.
For more information about Irrevocable Trusts, please see our website by clicking here.
The next edition of the Koldin Law Center E-Newsletter will discuss some options for naming a Trust as the beneficiary of your life insurance.
At the Koldin Law Center, P.C., located in East Syracuse, New York, we have over 50 years of experience helping individuals plan for immediate crisis and long term care. Our attorneys are available to discuss your estate planning options, including the advantages and disadvantages of Revocable Trusts and Irrevocable Trusts, along with other estate planning considerations including a Will, Power of Attorney, and Health Care Proxy. We do not charge a fee for the initial consultation. We welcome your children, family attorney, accountant, and/or financial planner to be present at the initial consultation.
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