Medical Assistance for People Who Are Age 65 or Older and People Who Are Blind or Have a Disability
2.3.3.2.7.10 Life Insurance
The cash surrender value (CSV) of life insurance policies owned by a person is an asset that counts towards the MA ABD asset limit when the total face value (FV) of all policies owned by the person that insures the same person, is more than $1,500. A limited life insurance exclusion applies to the CSV of a life insurance policy when the face value of all policies owned by a person that insures the same person is $1,500 or less.
A life insurance policy is a contract that can sometimes be turned into cash. The basic concept of the contract is that the policy owner pays the premiums during the insured's lifetime and, when the insured dies, the life insurance company will make one or more payments to the designated beneficiary or beneficiaries. The policy owner may not be the person who is insured. However, life insurance companies have created many varieties of their products, which may require additional research and documentation. For additional detailed information and definitions of types of life insurance and life insurance provisions, see Appendix I - Life Insurance Concepts.
Burial insurance and term life insurance do not have a cash surrender value. These insurance products do not count toward the MA-ABD asset limit.
Annuities are a type of life insurance product that may provide income to the policy owner while they are still living. Annuities are evaluated differently than life insurance. See Medical Assistance for People Who Are Age 65 or Older and People Who Are Blind or Have a Disability (MA-ABD) Annuities for how the annuity is evaluated as an asset.
Policy For Evaluating Life Insurance
Life Insurance as an asset
The asset value of a life insurance policy is its cash surrender value (CSV), not its face value (FV).
Dividend accumulations and interest attached to the life insurance policy are separate assets and are evaluated separately.
Limited life insurance exclusion of cash surrender value
The limited life insurance exclusion of CSV applies when the FV of all polices owned by one person that insure one person is $1,500 or less. This exclusion is applied per person.
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The cash surrender value of life insurance policies owned by one person that insure only one person, if the cumulative face value of all policies held for the benefit of that one person amount to $1,500 or less, is excluded as an asset. If the cumulative FV of all policies held on that one person amount to over $1,500, then the CSV of the policies is counted as an asset (subject to possible exclusion under the burial fund exclusion- see MA-ABD Burial Fund Exclusion).
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Interest and dividend additions are not included when determining whether the total face value of all polices is over $1,500 a life insurance policy is a countable or excluded asset.
EXAMPLE
Maria is 67 years old and owns three life insurance policies on theirself with the following values:
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$400 FV with $700 CSV,
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$500 FV with $1000 CSV, and
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$200 FV with $400 CSV
The total FV of their policies is $1,100 ($400 + $500 + $200 = $1,100). Even though the total CSV of the three policies is $2,100 ($700 + $1,000 + $400 = $2,100), the CSV of the life insurance policies are entirely excluded because the life insurance polices are for the same insured person and the total FV is less than $1,500.
EXAMPLE
Maria, from the previous example, also owns three additional life insurance polices on three other insured people. In this case, if the total FV of the policies owned on each of the other people is less than $1,500, the CSV of those policies are also excluded.
EXAMPLE
Maria is 67 years old and owns three life insurance policies on theirself with the following values:
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$600 FV with $900 CSV,
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$900 FV with $1,200 CSV and,
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$400 FV with $600 CSV
The total FV of their policies is $1,900 ($600 + $900 + $400 = $1,900). The total CSV of the three policies is $2,700 ($900 + $1,200 + $600 = $2,700). Since the total FV of the policies is over $1,500, the CSV of the life insurance policies are counted as an asset with a value of $2,700.
Interaction with the burial fund exclusion
The $1,500 burial fund exclusion is reduced by the FV of:
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any life insurance policy where the CSV is excluded; and,
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any burial insurance policy for the burial expenses of the person.
The $1,500 burial exclusion is also reduced by the FV of a life insurance policy for which a funeral provider has been made the irrevocable beneficiary, if the life insurance policy owner has irrevocably waived their right to, and cannot obtain, any CSV the life insurance policy may generate.
For burial fund exclusion policy, see MA-ABD Burial Fund Exclusion.
Dividend additions and dividend accumulations
Dividends are payments from annual surplus earnings that life insurance companies may offer their policy owners. Dividends are not included when determining the face value of a life insurance policy. When dividends accrue in an account controlled by the insurance company for the policy owner, these are called dividend accumulations. When dividends are used to purchase more insurance for the policy owner these are called dividend additions.
Dividend accumulations
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Dividend accumulations under the life insurance provision are counted, even if you exclude the CSV of a life insurance policy that pays the accumulations.
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Unless the accumulations are excluded under another provision (for example, because they have been designated under the burial fund exclusion), the accumulations are counted as an asset, even if you exclude the CSV of the life insurance policy itself because the policy's FV is $1,500 or less.
Dividend additions
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If the CSV of a life insurance policy is a countable asset, the CSV of dividend additions is included when determining the person's countable assets.
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If the CSV of a life insurance policy is an excluded asset, the CSV of the dividend additions is not included when determining the person's countable assets.
Income treatment of dividends
Dividends count as income if the CSV of the life insurance policy is excluded.
Dividends are excluded as income if the CSV of the life insurance policy is counted as an asset. If the CSV of a life insurance policy is designated under the burial fund exclusion, dividends are also excluded.
Accelerated Life Insurance Payments
Receipt of an accelerated life insurance payment may reduce the FV and CSV. A policy owner may take out a loan against the life insurance policy which also may reduce the CSV.
Legal Citations
United States Code, title 42, section 1382b
Code of Federal Regulations, title 20, section 416.1230
Minnesota Statutes, section 256B.056, subdivision 1a