Life Insurance Issues

Life Insurance Issues

A. One of the most common oversights which can delay eligibility is the failure to inquire about applicant’s (or spouse’s) life insurance policies. References to the relevant New Jersey Administrative Code citations are included.

B. While the cash value of life insurance policies with a total face value of $1,500 or less is an excludable resource (N.J.A.C. 10:71-4. 4(b)4.), the existence of a life insurance policy(s) often presents a trap for the unwary. Often an elderly client will have a small policy with a substantial cash value. If the face value of such policy (or total face value of several policies) exceeds $1,500, the cash value constitutes a countable resource. Therefore, it is necessary to surrender the policy and spend the cash value.

Caution: While a group policy has no cash value, the aggregate face amount of all policies (including group) is considered in the determination of whether the cash value(s) is an excludable resource.

Note: Another solution to the cash value problem is for the owner of the policy (generally the applicant) to borrow against the policy. While this technique would reduce the death proceeds, the cash value would no longer be a resource. Hopefully, the borrowed funds can be used to pay debts or acquire excludable resources.

1. If the face amount of a policy is large and/or the death of an applicant is near, consideration should be given to a transfer of ownership of the policy to the community spouse. Of course, the cash value will then count toward the Community Spouse Resource Allowance.

2. Life insurance on the life of and owned by the community spouse could also present a problem. That is, the cash value on such policy counts toward the Community Spouse Resource Allowance and will result in a denial of eligibility if not considered. There is no express $1,500 exclusion in the regulations for a policy owned by and on the life of the community spouse.

Note: Again, policies need not always be surrendered. As indicated above, it might be advantageous to transfer a policy with a substantial death benefit to the community spouse, particularly if death of the applicant is near.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.


© February 2009, Post #3