Supplemental Security Income (commonly referred to as SSI) is a program offered by the federal government through the Social Security Administration. This program offers income to an estimated 7.7 million people. In order to receive aid from this program, you must be in one of the following categories:
- Aged (65 or older)
In addition, income and resource limits must also apply in order to qualify for Supplement Security Income. For individuals, assets and resources must not be valued at more than $2,000, and for couples, resources and assets must not be more than $3,000.
With that said, if you carry a permanent life insurance policy, such as whole life or universal life, it’s important to understand if the cash value of your policy will affect your ability to receive Supplement Security Income. Below, we explain what income is taken into consideration when determining if an applicant qualifies for SSI.
Income Considered for SSI
In order to qualify for SSI, both earned and unearned income is taken into consideration.
In terms of earned income, 50 percent of earrings valued at more than $65 a month are exempt, while the first $20 in unearned income a month is exempt. Any other income that is unearned is calculated at 100 percent. Therefore, if you are receiving any amount of money from your life insurance policy, such as dividends or you have taken out a loan against the cash value account, the amount will be considered unearned income toward Supplement Security Income. In other words, any money that you are receiving from your life insurance policy could affect your eligibility for SSI benefits. Furthermore, it could also affect the amount of benefits that you would be eligible to receive.
You are required to report any income that you are receiving from your permanent life insurance policy within 10 days after the start of the month that you begin to receive the funds. Reductions to your benefits will be applied two months later.
Can You Own a Life Insurance Policy if You Receive SSI?
If you are receiving Supplemental Security Income, you can purchase a new life insurance policy. The Social Security Administration does not have the right to interfere with your ability to purchase new life insurance coverage. However, if you are receiving SSI benefits, it is in your best interest to find out how purchasing a new life insurance policy will affect your SSI benefits.
Why should you find out how a new life insurance policy will affect your SSI benefits? Because, as mentioned above, any money that your receive from a permanent life insurance policy, whether it is in dividends or via a loan that you have taken out against the cash value of your policy, can affect your SSI benefits. The moneys received from life insurance are considered unearned income, and they can have a significant impact on your ability to receive benefits through the Social Security Administration.
Supplemental Security Income eligibility, as noted, is based on the current assets and resources that you possess. It is also based on your ability to earn money or otherwise collect money for the cost of living; i.e. – life insurance. As such, you report any life insurance policies that you own when you are applying for SSI benefits. Furthermore, you must disclose any money that you are receiving from your life insurance, even after you start receiving SSI benefits.
Cash Value and SSI
If you have a permanent life insurance policy, the surrender cash value of the policy will more than likely be considered a resource. The reason? – The surrender cash value refers to any money that you would acquire from your life insurance provider if you were to cancel out your policy.
Term Life Insurance and SSI
If you have a term life insurance policy, no matter the value or the death benefit, it will not have any impact on your SSI eligibility or the benefits you receive. Term life insurance does not carry any cash value, and therefore it cannot be considered an asset, as you cannot collect money from it. The only value that a term life insurance policy holds is the death benefit; the money that the insurance provider will pay out to beneficiaries when you pass away.