Will receiving insurance payout affect elderly grandmother's Medicaid benefits?

No if grandma gets a check she has to provide tax IDnumber for payout. You can’t get this so payout goes to someone other than grandma if she accepts inheritance. It’s hers, not yours.  That tax ID and check issued is on file and reported by insurance company to federal and state agencies. You sign all access pass for Medicaid to look at finances when you apply for benefits.  Be careful about disclaiming it. Some states treat that as a form of gifting.

This article states that disclaiming the benefit would NOT be allowed by Medicaid.

https://www.agingcare.com/articles/medicaid-vs-inheritance-192510.htm

Disclaiming the benefit would require a form to be filed with the life insurance company, and not just "signing over" the check. However, I don't know whether a disclaimer could still jeopardize eligibility since your grandmother had control over the receipt of the benefit. Best to consult with an attorney who could also advise on how to spend down the benefit if it cannot be disclaimed.

Thank you for the responses. Sounds like disclaiming the benefits would be best. I’m assuming she just can’t sign the check over for someone else to deposit correct?

You are correct that generally, the rule is 65 for the "usual" first-party special/supplemental needs trust. But there are pooled and third-party SNTs that might be applicable (there isn't the age restriction for those). A good elder law attorney should be able to assess what may be permitted or if it's not at all in their interest to take the insurance proceeds for their state/situation. As to disability, mental impairment (including dementia) is considered a disability under federal law at a minimum (I don't know state laws well enough to opine on that).

I was under the impression that a Special Needs Trust is only for disabled people. Recently it was mentioned it cannot be gotten after the age of 65. My nephew has one to protect insurance money when his Mom died. I had to get it before he was able to file for SSD.

Yes, it will impact her Medicaid benefits, and yes, if it's transferred to her account and then transferred out, it would escalate the issue to a potential fraud action.

Talk to an eldercare attorney before claiming or disclaiming the funds - the insurance company will wait (I do work for an insurance company, and this situation is not uncommon and we will wait to pay!). The attorney can advise as to options such as disclaimers or a special needs trust that would leave her Medicaid benefits intact.

A beneficiary can waive their claim to the payment and the money will go to the secondary beneficiary or to the heirs at law.

What you are suggesting is fraud. Any money your Gma receives Medicaid needs to know about. If you haven't done it yet, her funeral can be prepaid, That includes flowers and the luncheon I was told. Medicaid will stop until you spend down the insurance.

Yes. She needs to consult an Eldercare Attorney.