When a loved one passes away, the last thing anyone wants to think about is how their estate, including life insurance policies, will be handled. For many, the question comes up: Can a nursing home take your life insurance from your beneficiary?
In this article, we will break down this question and explain everything you need to know about life insurance, nursing homes, and whether or not a nursing home can take your life insurance money.
What Is Life Insurance and Who Gets It?
Life insurance is a policy you purchase to ensure that, after your death, your loved ones (the beneficiaries) will receive a payout from the insurance company. The beneficiary could be anyone you name on the policy—such as a spouse, child, or friend.
The payout from life insurance is intended to provide financial support to help cover expenses like funeral costs, and medical bills, or to replace lost income.
Can a Nursing Home Take Life Insurance Money?
In short, no, nursing homes cannot directly take your life insurance from your beneficiaries. The life insurance benefits are legally owned by the beneficiaries, and the nursing home does not have the right to claim them automatically.
However, there are some important exceptions and factors to understand which will see today.
What Happens If You Owe Money to a Nursing Home?
If you or your loved one were receiving long-term care in a nursing home and you passed away with an outstanding balance, the situation could become a bit more complicated. Nursing homes can pursue payment for the debt owed by the deceased individual, but they can’t take the life insurance payout directly from the beneficiary.
Here’s what may happen:
- Estate Claims: The nursing home can file a claim against the deceased person’s estate. If the person was receiving care in a nursing home, the estate may be used to pay off their debts, including any remaining bills for care. If the deceased person’s estate includes life insurance proceeds, those funds could be used to pay those debts, but only if the funds are part of the estate and not directly transferred to the beneficiary before the debt is settled.
- Medicaid Liens: If the person was receiving care through Medicaid (a government health insurance program for low-income individuals) and the life insurance is part of the estate, Medicaid may have a lien against the estate to recover the money it spent on the deceased person’s care. In this case, Medicaid can claim the life insurance proceeds to pay back what was owed.
Can Medicaid or a Nursing Home Take Life Insurance If the Beneficiary Is Not the Person Who Owes Money?
If the beneficiary is not the person who owed money to the nursing home, the nursing home still cannot take the life insurance directly. However, if the deceased person was receiving Medicaid assistance, Medicaid might have a claim against the estate to recover funds spent on medical expenses. This could impact the amount of money available to the beneficiary from the life insurance, but the beneficiary is still the rightful owner of the policy payout.
What About Joint Life Insurance Policies or Policies with “Payable on Death” Beneficiaries?
If you have a joint life insurance policy or one that names a specific beneficiary, the policy proceeds should go directly to the person named on the policy, no matter what debts are owed. Nursing homes cannot interfere with that.
However, if you did not designate a beneficiary or if the beneficiary is your estate (in rare cases), then the money could go into your estate, and your creditors—including nursing homes—may try to claim that money. That’s why it’s important to keep your beneficiary designation updated, especially if you are in or approaching nursing home care.
Can the Nursing Home Take My Life Insurance If I’ve Signed a Contract or Agreement?
It’s important to note that some nursing homes require residents to sign contracts when they enter care. These contracts may include provisions related to how the nursing home will be paid for services. However, even if you sign such a contract, the nursing home cannot take life insurance money directly from your beneficiary unless that money is part of the deceased person’s estate, and even then, the beneficiary would need to be notified.
What Can I Do to Protect My Life Insurance from Being Taken by Creditors or a Nursing Home?
If you’re concerned about a nursing home or creditors trying to claim your life insurance proceeds, there are several things you can do:
- Designate a Beneficiary: Make sure you name a beneficiary (or beneficiaries) on your life insurance policy. If the insurance is paid directly to a beneficiary, it’s generally protected from claims by creditors.
- Consider a Trust: You can place your life insurance policy in a trust to protect it from creditors. A trust can also help ensure that the money goes exactly where you want it to go.
- Review Your Will and Estate Plan: If you are in a situation where you may need nursing home care or have long-term care concerns, it’s a good idea to review your estate plan with an attorney. They can advise on how to protect your assets, including life insurance, from potential claims by nursing homes or other creditors.
- Medicaid Planning: If you are concerned about Medicaid liens, consider Medicaid planning with a lawyer who specializes in elder law. They can help you navigate how to structure your finances to avoid losing assets to Medicaid or a nursing home.
What If I Don’t Have Enough Money to Pay for Nursing Home Care?
If you don’t have enough money to pay for nursing home care and are considering applying for Medicaid, be aware that Medicaid has rules about what assets you can own. It’s important to get legal advice about what to do with your life insurance policy before applying for Medicaid, as it can affect eligibility and the amount of benefits you can receive.
Can the Nursing Home Take Life Insurance Money from a Spouse or Child Beneficiary?
As long as the beneficiary is named on the policy and the payout is made directly to them, the nursing home cannot take those funds. The life insurance money belongs to the beneficiary, and even if the deceased owed money to a nursing home, it’s not the nursing home’s right to take it from the beneficiary.
However, if the beneficiary is the estate or the funds are placed into the estate, the nursing home may try to claim the estate, and that could affect the life insurance payout.
You can check out the following YouTube video in which Dana explained each and every aspect of nursing home and life insurance.
My Final Words
The good news is that nursing homes generally cannot take life insurance proceeds directly from a beneficiary. However, there are certain situations where life insurance proceeds could be used to settle debts, particularly if the money is part of the deceased person’s estate. To protect your life insurance payout from creditors or nursing homes, it’s essential to:
- Keep your beneficiary designation updated.
- Consider setting up a trust or reviewing your estate plan.
- Understand Medicaid rules and how they could impact your estate.
If you’re uncertain about the best way to protect your life insurance or other assets, it’s always a good idea to consult with a lawyer specializing in estate planning or elder law. They can help ensure that your assets, including life insurance, are protected and distributed according to your wishes.
