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No cash value to her and paid to her kids upon death.

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No, I have one of those retirement policies. Medicaid won't go after that. As long as the Medicaid recipient does NOT own the policy, and is not the beneficiary e.g. "payable to the estate of (self)" they have no way to go after it.
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How the policy exactly reads will make the decision as to what happens to it.

For my mom's Medicaid application, she had to provide a copy of all pages of the actual policy. This was a really really old policy with a face value of 1K. The caseworker is looking to see what the policy is - like if it is a term policy or a whole life policy. And then if the policy has any cash value or if can have a surrender value. Whole life builds cash value but some term polices have a surrender or a borrow against availability. If it has either, the policy will need to be cashed in & this can take a few weeks to get done too. The glitch for my mom's policy was that it was about 30 pages - like most old, old policies are - and the caseworker does not have the time or the ability to evaluate it, so he called me on this. I had to provide to him a statement that it was term with NCV in like 2 days or mom's application would be declined for "information not provided". Got a broker with a TX insurance license to provide that and faxed it over to caseworker. Issue solved. The caseworkers I've found want to work with you, want to get your parent accepted & onto Medicaid, but they have strict documentation & time-frame requirements that have to accompany the application. So it's important that you review the policy to make sure you understand how it's structured before you submit your mom's application.

& You need to see how the payout to the beneficiary of the policy reads. If beneficiary is her estate and then within her will it goes to the kids, then Medicaid can place a claim or a lien against the estate for the $ from the life insurance policy. But if the policy beneficiary is done outside of probate, then Medicaid cannot place a claim.

Perchance does the policy produce a dividend? This often happen for paid up policies OR employer sponsored ones. If so, please post as there is something you need to do on that for Medicaid.
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