The first thing you should do is consider filing for VA "Aid & Attendance" benefits for your father in law.  You can look this up on the internet to see what kinds of assistance qualifies and determine whether this will help you and your husband care for him (Medicare Part B, Medicare Supplemental Ins., hiring help in the home, etc., qualifies).  He may also qualify for a VA pension.  Several veteran's associations and local governments help people apply for these benefits.As for the life insurance policy, this depends on how Indiana chooses to handle assets.  Generally, the cash value of life insurance policies count as assets if your father in law could cash it in.  Many states permit Medicaid applicants to designate certain assets for burial.  You would have to check with your Medicaid authorities or an elder law attorney about this.  Also, many nursing home business office managers know the Medicaid rules and may be able to answer this question.I hope this helps.