Confused about whole life insurance policy.

My mother has been in a nursing home for five months now. She is receiving Medicare and Medicaid to pay for her to be there. She has a lips all life insurance policy valued at $7000.00. The cash value is $1700.00, I was told by a friend that she can only have a cash value of $1500.00 she is $200.00 over. The state by rights can tell me to cash it in in which they have not yet. What should I do? I have been making her payments for two years now on this policy. Thank you for your help.