Can You Have Life Insurance While on SSI?

Supplemental Security Income (SSI) is a federal program administered by the Social Security Administration (SSA) that provides financial assistance to individuals with limited income and resources. This needs-based program helps those who are aged 65 or older, blind, or disabled meet their basic needs for food and shelter. Understanding the program’s resource limits is fundamental for anyone considering or currently receiving SSI benefits.

Understanding SSI Asset Rules

The Social Security Administration has rules regarding assets (resources) an individual can own while remaining eligible for SSI. For an individual, the countable resource limit is $2,000, and for a married couple, the limit is $3,000. These limits ensure the program targets those with the greatest financial need.

Resources include items of value that can be converted to cash, such as money in bank accounts, cash on hand, stocks, and bonds. The SSA also considers certain real and personal property. This includes real estate beyond the primary residence and any vehicles excluded for transportation. The value of these assets, when combined, must remain below the established limits for continued SSI eligibility.

Life Insurance and SSI Eligibility

Life insurance policies can significantly affect SSI eligibility, depending on their type and value. Term life insurance policies do not build cash value over time, meaning they are not considered a countable resource for SSI purposes. These policies provide a death benefit for a specific period, and if premiums are not paid, coverage ceases without any accumulated value.

In contrast, cash value life insurance policies, such as whole life or universal life, accumulate a cash surrender value (CSV) which can be accessed by the policyholder during their lifetime. The SSA considers this cash surrender value a countable resource because it represents funds available to the individual. If the cash surrender value of these policies, combined with other countable assets, exceeds the SSI resource limits, it can result in a reduction or termination of benefits.

Distinguish between a policy’s face value and its cash surrender value. The face value is the death benefit, the amount paid out upon the insured’s death. The cash surrender value, however, is the amount the insurance company pays to the policyholder if the policy is canceled or surrendered before the insured’s death. For SSI eligibility, the cash surrender value is what the SSA assesses against the resource limits.

Exemptions and Exceptions for Life Insurance

While cash value life insurance counts as a resource, specific exemptions can apply. Life insurance policies with a total face value of $1,500 or less per individual are excluded from countable resources. If the combined face value of all life insurance policies an individual owns on their own life is $1,500 or less, their cash surrender value is not counted towards the SSI asset limit.

However, if the total face value of all policies on an individual exceeds $1,500, the entire cash surrender value of all those policies becomes a countable resource. This rule applies even if some individual policies within that total have a face value below $1,500. This calculation can significantly impact eligibility, as the full cash value, not just the amount over $1,500, is considered.

Funds set aside for burial expenses are also excluded. An individual and their spouse can each set aside up to $1,500 specifically for burial expenses, and these funds will not count as a resource for SSI. These designated burial funds must be kept separate from other assets and clearly identified for burial purposes. Prepaid burial contracts or irrevocably assigned life insurance policies used to fund burial arrangements may also be excluded, although revocable assignments count as a resource. Interest or appreciation on these excluded burial funds does not count as income or resources if left to accumulate within the designated fund.

Reporting Requirements and Maintaining Eligibility

Maintaining SSI eligibility requires reporting changes in an individual’s financial situation to the Social Security Administration. This includes promptly notifying the SSA of increases in the cash value of life insurance policies or acquisition of new assets. Individuals are required to report changes within 10 days after the end of the month in which the change occurred.

Failure to report promptly can lead to significant consequences, including overpayments of benefits that must be repaid to the SSA. The SSA may also impose penalties ranging from $25 to $100 for each failure to report.

If individuals knowingly provide false or misleading information or fail to report crucial changes, benefit payments can be suspended for several months, potentially leading to a period of ineligibility. Reporting can be done via phone, online, or in person at a local SSA office.