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Mother has a $25.000.00 life insurance policy that goes to me when she passes. It has an approximate cash value of $7400.00. Will medicaid require us to "cash it out" before she can qualify?

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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.
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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.
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