Does Life Insurance Count as an Asset for Medicare Savings Programs?

Term life insurance never counts as an asset for Medicare Savings Program eligibility because it has no cash surrender value. For permanent policies such as whole life or universal life, federal rules in SSA POMS SI 01130.300 establish a $1,500 total face-value exemption threshold in states that apply an asset test. If your permanent life insurance policies exceed that threshold, their cash surrender value counts toward your resource limit.

Life insurance rules for MSP at a glance

• Term life insurance policies are completely exempt from the MSP asset test regardless of death benefit size.
• Permanent policies with a combined face value of $1,500 or less per person are completely excluded from countable assets.
• If total face value exceeds $1,500, only the cash surrender value counts toward the asset limit, not the death benefit.
• Fourteen jurisdictions do not evaluate life insurance because they operate without an MSP asset test.

Term life vs. permanent life insurance

Term life insurance provides temporary death benefit protection over a specified term of years. Because term insurance accumulates no cash reserves, you cannot surrender the policy for money. State Medicaid agencies exclude all term life policies from resource reviews. You do not need to worry about policy value disqualifying your application.

Permanent life insurance includes whole life, universal life, and variable life. These policies build a cash surrender value that the policyholder can borrow against or cash out. Caseworkers evaluate this cash surrender value when reviewing applications in states with asset tests.

How the $1,500 face-value rule works

Federal policy calculates life insurance resources using a two-step evaluation:

1. Review total face value: The caseworker adds together the face value (the nominal death benefit stated on the policy face) of all permanent life insurance policies you own.
2. Compare to the $1,500 threshold: If the combined face value of all permanent policies on an individual is $1,500 or less, the entire cash surrender value is disregarded.
3. Count cash value if above threshold: If the total face value exceeds $1,500, the cash surrender value of all policies counts as a resource. The death benefit is never the counted amount.

Example: An applicant owns a whole life policy with a face value of $10,000 and an accumulated cash surrender value of $2,400. Because the face value exceeds $1,500, the $2,400 cash surrender value counts toward the 2026 individual federal asset limit of $9,950. The remaining $7,550 of the asset limit remains available for savings and bank balances.

Burial insurance and funeral contracts

Many policyholders confuse regular life insurance with designated burial insurance. Life insurance policies irrevocably assigned to a funeral home for funeral goods and services are excluded from resources up to state limits. Revocable burial contracts and designated burial funds often receive separate exclusions of up to $1,500 under federal rules.

To check whether your state tests life insurance, visit our 2026 MSP asset limits overview or start your application estimate on the free MSP checker.

Frequently asked questions