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LAW Home > Legal Topics > Health Care > NJ FamilyCare/Medicaid > Renewing your Medicaid Coverage

What You Need to Know If You Have a Life Insurance Policy and Medicaid


If you are enrolled in an NJ FamilyCare non-MAGI Medicaid program, then that program has an asset limit. The programs with asset limits are SSI Medicaid ($2000), Medicaid Only ($2000), New Jersey Care…Special ($4000), MLTSS ($2000) and the Medicare Savings Programs ($9430). All assets limits listed are for individuals; some asset limits are higher for a couple or family. NJ WorkAbility is an exception: as of April 1, 2023, it does not have an asset limit.

Assets include bank accounts—including bank accounts that you own with other people—real estate, and retirement accounts. A home you live in and your primary vehicle are not counted because they are considered exempt as long as you are using them. However, the value of a second home or vehicle would be counted.

An asset that people often don’t think about is the cash value of their life insurance policy. Many life insurance policies offer this feature, and the Medicaid program views this cash value as a resource. To find out if your policy has a cash value, call your insurance company. If it does, then ask them to send you a letter stating your current cash value.

It is important to pay attention to the cash value, because it counts towards the asset limit of your Medicaid program. The cash value will be added to any other assets you have, including money in your bank accounts, to see if you are over the limit for your program. If you are, then you will no longer be eligible for that Medicaid program until you spend that money down below the applicable limit.

You do not have to cancel your life insurance policy. Instead, you can ask the company to send you a check for the cash balance. This will reduce the payout of the policy after you die. For example, if the policy is for $5,000, also known as the “face value”, and you take out $1,000 in cash value, then the policy will provide $4,000 in payment after death.

You can spend the cash value on things you need, such as furniture, electronics or car repairs. Keep receipts or other documentation showing what you used it for. You should not give the money to anyone as a gift.

If purchased that life insurance policy to pay for your funeral, you can use the cash value for the same purpose, by “pre-paying” part of your funeral. Visit the funeral home of your choice and discuss putting the cash value money into a funeral trust. The funeral director will help you to ensure that the money is saved for that purpose and give you documentation to show the Medicaid agency. A funeral trust is not counted toward your asset limit.

If you have questions about the asset calculations for Medicaid or setting up a funeral trust, contact the LSNJ Health Care Access Project through the LSNJLAWSM Hotline at (1-888-LSNJ-LAW, 1-888-576-5529), or your local Legal Services program.