Will Medicaid require us to cash out mom's life insurance before she can qualify?

Yes.

If the agent is still around, I'd call him asap to see what will be required to cash out and if there will be a penalty. The agency contact info should be on the face page of the policy. Good luck.

Brain fart --- is mom the "owner" of her policy? If she is, then the cash value is an asset and she (you) will have to do a spend-down for the whole amount. BUT if mom DOES NOT OWN the policy, then it is not her asset. Get the policy and review it.