Why do I have to cash in my Dad's life insurance policy if I'm paying for it?

Generally, the cash can be used for a funeral - at least a certain amount. As nearly everyone here has said, states vary since Medicaid is state run.
Good idea to check all of this out.
Carol

I'm always bewildered when I read article's that say "my parents worked hard all their lives and the state took everything to pay for their care." Who exactly do you think the "state" is? Well its you and me its the tax payer we make up the "state" and its wealth or lack of. So for us the "state" to ask that everyone pay for their own care if they have the funds before asking others to chip in and pay seems fair actually more than fair. We are willing to pay for the care of others if they can't afford it. And what else could be more important to spend someone's money on than providing care for them in their time of need? I guess some people think that spending their inheritance on care is just plan wrong. I urge you to take a step back and look at how you sound.

Life insurance, unlike many other types of insurance (car, health, home...) often includes an investment component which is an asset in the same way a savings account or mutual fund would be. In most states, when someone is applying for Medicaid to pay for their nursing care, they must first use those assets.

Like 'pinky1', I also bristle when I hear complaints about "the State" taking a parent's assets to pay for care. Medicaid is an entitlement program (like food stamps or Section 8 vouchers). Its purpose is to pay for care for those who cannot pay themselves. If you have assets, you must first use them to pay for your care, then "the State" will pay. The popular notion that the State "takes your money" is inaccurate. The State acts as a middle man so that care can be started immediately. They begin paying the nursing home for you while you sell any assets that are not liquid, then they recover that money from you. Would you rather the alternative...you're discharged from the hospital needing skilled nursing care and you sit at the curb while your house is sold or your insurance policy is cashed in!

That said, many states allow certain expenses to be paid from assets before the money must go towards nursing care. Often, you can pre-pay for the funeral. It's unfortunate that many don't know this and wind up footing the bill themselves when it could have been paid. Even for someone with minimal assets, it is so worth sitting down with an lawyer, just to get some good advice. I spend only $200 for an hour with a qualified elder law attorney and she steered me clear of what would have been a very expensive mistake. Get all your paperwork and questions together and make an appointment.

Realize each state runs it's Medicaid program uniquely even through it is a federal & state program.
For the insurance, the ? Medicaid need to know is ownership of the policy and whether it has any cash value which would be an asset of the owner. So who owns the policy? If you own the policy, then it's not dad's asset and it should not have been listed as his asset. But if he owns the policy, even if you or another kid pays the policy, then it's his asset. If it has a cash value, the cash value has to spent down on his care before Medicaid will pay. If the policy is over a set amount, the state can ask for details on the policy as to beneficiary. If the policy beneficiary is his estate, then you can expect the state to file a claim (this would be a Class 7 claim for TX probate) for the proceeds from the insurance policy to repay the state for his Medicaid costs. This ability is indicated in the Medicaid application as "Acknowledgement of Participation". MERP for TX is now being out-sourced too.

People seem to get caught up in whether or not a person "deserves" the benefits they receive from social programs.

Would a better system involve judging whether the child who eats the food bought with food stamps is more or less deserving of tax dollars than someone who "worked and paid taxes his whole life" but, for whatever reason, finds himself with very little money and needing expensive care in his old age?

Does it change the equation if the 'hard working' man gambled and drank away all the money he could have saved for retirement. Or if the child's parent is an unmarried drug addict or a struggling minimum wage worker? Who decides? A social worker, a judge? Some people seem to feel that they (or their parents) do 'deserve' the benefits and others, because of their employment status or perceived laziness, do not.

The programs exist for those who are in the circumstances determined to qualify for them.

No one is able to look into the heart and soul of any individual and judge whether they are deserving of mercy and charity. In our civilized society, we choose to not simply step over the bodies of the poor in the street, whether those bodies be of saints or sinners, they get help when they need it, simply because they need it.

Look at the policy. If you are listed as the owner, it does not get cashed in.
If he is the owner, he has to use the cash value to pay for his care.

The key feature of whole-life policies is that they can be redeemed for cash after "x" number of years (usually a lesser amount than face value) without the inconvenience of having to be dead first. This cash belongs and is at the disposal of your Dad regardless of who pays the premiums or who is named as beneficiary in the event of his death. Your father has sole discretion to take that cash and spend it whenever and however he wants as long as he's still breathing - thus it is part of his assets the same as cash in his bank account, stocks, bonds, etc. For people of low enough income to qualify for Medicaid, unfortunately, such a policy is generally their ONLY asset beyond a meager social security income, so it seems especially unfair.

I completely understand how you feel. My parents were never able to provide for me and I managed for myself since I was VERY young. Many years later in life, I ended up caring for my mother's every need in my home for 10 years prior to her nursing home admission (KY). Just as I've done all of my life, this was done without any public or private assistance. However, I had to mollify my husband with the idea that "one day we will recoup at least a fraction of these expenses from her insurance policy," assuming there would be any left after the funeral. Now that won't be the case. I had to designate my Mom's whole-life as a "burial policy," and sign the entire proceeds irrevocably to the funeral home before she could qualify for Medicaid. She only gets to keep $40 of her SS money for her personal needs, so I end up paying the $72 per month in premiums, plus $100 for DEPENDS because she cannot manage the tape-on style of incontinence garments the nursing home provides. There are other odds and ends, so our fixed income takes a $200 monthly hit that we did not anticipate.

I don't mind missing out on any “inheritance” proceeds, nor do I have a problem helping provide for my mother - what I DO mind is dipping into my husband's carefully saved retirement to get it. The conflict is gut-wrenching; so at the age of 62, I'm having to go job-hunting again. With the taxes I still pay, and my mother having been a gainfully employed taxpayer in her own right for 50 years or more before her illness, all of this has been a bitter pill to swallow, discovering that she did not merit any better than she's getting. I've had to take a step back and adjust my thinking about this matter in recent months, and as soon as I can eliminate the need to "Rob Peter to Pay Paul," I will feel a whole lot better. People need to know that planning for your own retirement is not (and has NEVER been) enough. Wish you the best of luck in the trauma of dealing with bureaucracy. It’s never easy.

My mother was in a nursing home in Virginia she got Medicade there and didn't have to cash in her policies, when I moved her here with me in Arkansas then later had to admit her to a nursing home because she had gotten worse I had to cash the policies in because they had cash value. After cashing in I had to turn around and have a counter check written to the nursing home for the exact amount the polices were. This really put me in a finacial bind upon her death, I had her flown to Virginia to be buried beside my dad, so now I am stuck paying for that bill which the policies would of taken care of. Medicade does not care, if your love one has anything that is of value they are going to take it to cover the cost of the facility and medical needs. You work hard all your life and end up giving everything to the state in the end.

You are cashing in a policy so that the cash can be used toward paying for your father's care. Do you expect Medicaid, a.k.a. taxpayers, to foot the bill for your father's care so that you can cash in the life insurance policy when he dies & keep all of the money? You don't say how much is in the life insurance policy, but it must be a sufficient enough amount for you to be concerned about losing it.

You can use some of the money to pre-pay his funeral expenses. Everything else goes toward his care at the facility. If you want to keep the life insurance money, bring your father home & take care of him yourself/

So well said, Igloo. One thing that factors in heavily these days is the cost of nursing home care. Fifty years ago the facilities were not very nice and got a bad reputation. Their only saving grace is that they were affordable. Now end-of-life care is so expensive that few people were able to save that type of money. Considering that many people our parents' age made only $20-30K a year before they retired, each year in even a modest NH would cost more than they made in an entire year at work. And if memory care is needed, as is often the case now, the cost would be twice that. Who can save that type of money and have anything to live? Unfortunately, most people are not Warren Buffett, so didn't turn their molehill of savings into a mountain of wealth.

I do wish that we could find a way to lower the cost of elder care in the US. Keeping parents at home when it is possible is a good way, but often not practical. What I would really like to see is some entrepreneurial spirits open facilities that are nice and not so profit oriented. Sometimes I feel like people view elders as a cash cow. Personally I am glad that Medicaid is there to fall back on. It doesn't take long for end-of-life care to go through what looks like a good bit of money.