Crooked Insurance Company?

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My husband's uncle recently went into the nursing home. He had to be approved for Medicaid in order to be able to stay there. He had a life insurance policy that had to be made into an irrevocable burial insurance policy assigned to a funeral home so that his Medicaid would be approved. He went through the process the insurance company required to change it over for him ( they wanted a form with his original signature on it mailed to them, no faxes.) That is understandable since he is 79 years old maybe the company tries to protect their clients from fraud, but here's the clincher. A couple of days ago he received a letter in the mail that said a funeral home cannot be designated as a beneficiary in our state. I talked to the social worker at the nursing home about it and she said that is totally fraudulent, that they help people change over life insurance policies all the time so they can get Medicaid and stay there. So she is going to call the company and get things straightened out for us. I have to wonder, though, how many other people the insurance company has tried that with and they have just cancelled their policy so it wouldn't be an issue. My husband's uncle paid on that policy for 30 years, and if the insurance can trick him into canceling it they will never have to pay out on it. Does this sound crooked to you?