Can a Wife Keep the Proceeds of Life Insurance If the Husband Was on Medicaid?

One of the most common questions regarding life insurance proceeds involves repayment of creditors and other need-based support organizations. Both policy owners and beneficiaries are concerned that their death benefit could be taken from heirs, or otherwise forcibly used to repay the debts of the deceased, possibly leaving the surviving family destitute. By understanding more about life insurance beneficiary designations and the role of Medicaid, you will alleviate your concerns over the loss of life insurance policy proceeds.

What is Medicaid?

• Medicaid provides medical benefits to members of low-income families. The program receives the largest portions of funding from the federal government, with each state contributing smaller proportional amounts. Medicaid is managed at the state level with additional oversight from the federal government. Families meeting established income guidelines become eligible for reduced medical insurance and other necessary health-related services.

Regulation of Life Insurance

• Similarly to Medicaid, the life insurance industry is regulated by the states with minor oversight and involvement from the federal government. Each state government has its own insurance department responsible for the creation, implementation and management of laws surrounding the sale, solicitation and service of insurance policies. No connection exists between Medicaid and a state's insurance department.

Legality of Life Insurance Contracts

• A life insurance policy is a legally binding contract between an insurance company and the owner of the policy. Regardless of how the insurance industry remains regulated, or what level of government is responsible for establishing and enforcing those regulations, insurance companies are in no way managed or otherwise controlled by the government. Conversely, state governments are responsible for Medicare regulation and management, but have no authority to interfere with an insurance carrier's contractual relationships.

Life Insurance Beneficiaries

• Life insurance policy proceeds become payable to the listed beneficiaries at the death of the insured person. Insurance carriers must pay benefits to none other than the named primary beneficiaries, or contingent beneficiaries if all primaries are deceased. The only possible way that Medicaid would receive any of a person's life insurance proceeds is if the policy owner listed that organization as a primary beneficiary.

Recovery of Medicaid Expenditures

• Qualifications and eligibility determinations for Medicaid recipients do not involve a person's assets, nor consider the possibility that benefits may be repaid. The program was established with the specific intention of providing assistance to people who are unable to afford basic medical insurance. The notion of possibly recovering Medicaid expenditures remains unfeasible. Medicaid benefits provided to qualifying people are done so without the expectation of repayment at a later date.

Nursing Homes -- The One Exception

• Many states have enacted legislation allowing Medicaid to place a lien on certain types of personal property and real estate for the purpose of later recovering benefits paid to recipients in nursing homes. These provisions and regulations differ from state to state, but share many commonalities regarding how, when and in what situations such liens may be instituted and eliminated. For example, according to the Colorado Gerontological Society, "the State files a claim against the estate of the deceased medical assistance recipient. The estate includes all of the property (personal and real) that is left when a recipient dies." However, when certain conditions have been met, such liens may be eliminated.