Can I Have Life Insurance on SSI?

Supplemental Security Income (SSI) is a federal income supplement program designed to provide financial assistance to aged, blind, and disabled individuals who have limited income and resources. Owning assets like life insurance policies can impact SSI eligibility. Understanding these rules is important for recipients to maintain their benefits.

How Life Insurance is Treated as an SSI Resource

The Social Security Administration (SSA) defines “resources” as anything an individual owns that could be converted to cash to meet basic needs. For SSI eligibility, resource limits are $2,000 for an individual and $3,000 for a couple. Certain assets, such as a primary residence and one vehicle, are excluded.

Whole life insurance policies, which build cash value, are considered a countable resource. The cash surrender value (CSV) of these policies directly impacts SSI eligibility. If the total face value of all life insurance policies owned is $1,500 or less, their cash surrender value is not counted.

However, if the combined face value of all policies exceeds $1,500, the entire cash surrender value is counted toward the SSI resource limit. For example, if an individual has a whole life policy with a $5,000 face value and a $3,000 cash surrender value, that entire $3,000 would be counted. Term life insurance policies do not build cash surrender value and are not considered a countable resource.

How Life Insurance Proceeds are Treated as SSI Income

“Income” for SSI purposes includes money received in a month that can be used to meet basic needs. When an SSI recipient is named as the beneficiary of a life insurance policy, the death benefit received is counted as income in the month it is received.

Receiving a life insurance payout can lead to a reduction or temporary suspension of SSI benefits for that month. If the recipient retains funds into the following month and their total countable resources exceed the SSI limit, benefits could be suspended or terminated. Even if the beneficiary is not the SSI recipient but provides funds to them, it can still be counted as income.

Navigating Life Insurance with SSI Rules

Strategies exist to help SSI recipients or their families manage life insurance without jeopardizing eligibility. One allowance is the burial funds exclusion, which permits up to $1,500 per individual for burial expenses. This can include the cash value of a life insurance policy if it is irrevocably assigned for burial, meaning it cannot be used for any other purpose.

Pre-paid irrevocable burial contracts are another option, where the life insurance policy funds an agreement for future burial services. Because these contracts are irrevocable and funds are not directly accessible, they are not counted as resources for SSI eligibility. This allows individuals to plan for end-of-life expenses.

For situations where an SSI recipient might receive a significant life insurance death benefit, a properly established Special Needs Trust (SNT) can be a useful tool. If the death benefit is directed into an SNT, these funds can be used for the beneficiary’s needs without being counted as income or a resource, preserving SSI eligibility. SNTs are subject to strict rules and require careful legal drafting.

Notifying the Social Security Administration

SSI recipients must report any changes in their resources or income to the Social Security Administration (SSA). This includes acquiring a new cash value life insurance policy, an existing policy’s cash value increasing significantly, or receiving a life insurance death benefit as a beneficiary. Reporting should occur within 10 days after the end of the month in which the change happened.

Failing to report changes in a timely manner can result in consequences, such as overpayments that must be repaid, financial penalties, or loss of SSI benefits. Recipients can report changes by contacting the SSA, visiting a local office, or using online reporting tools. Maintaining thorough records of all reported changes and communications with the SSA is important.