Can a Cash Value on a Life Insurance Policy Affect My SSI?

Supplemental Security Income is a federal program recognized by its initials, SSI. SSI provides income to 7.7 million individuals who qualify in one of three categories: blind, disabled or aged. SSI recipients must also qualify by income and resources limits, with resources or assets not to exceed $2,000 for individuals or $3,000 for couples.

SSI allows ownership of a home and lot, car, household goods, a burial plot, burial insurance up to $1,500 and life insurance up to $1,500. If the total of all life insurance policies is less than $1,500, they will not affect your SSI benefits. This is face value, not cash surrender value. If the face value is below the limit, the Pennsylvania Department of Welfare indicates that you do not have to look at cash surrender value.

Resources that count for SSI eligibility review include cash, stocks, bonds and other assets of value. If you have few liquid assets, such as cash or bank accounts, you may apply excess life insurance to the $2,000 allowed in countable resources. The maximum life insurance allowed would be $3,500 -- $1,500 exempt resources and $2,000 in countable resources -- but you could not have any other resources.

Income that counts for SSI includes earned and unearned income. Earned income calculations subtract the first $65 and 50 percent of any income for the month in excess of the $65, so earned income calculations are at 50 percent of earnings over $65. Unearned income exempts the first $20. All other unearned income calculations apply at 100 percent. If you receive dividends or any income from a life insurance policy, that is unearned income for SSI and may affect your eligibility or your benefits, or may affect your benefit amount. You must report income within 10 days after the month you receive it, and subtractions to benefits occur two months later.

Because SSI allows a burial fund under the guidelines, you may designate the life insurance policy as burial funds and qualify for SSI. You may also borrow against the life insurance policy and decrease the cash value to comply with the limits. You can sell excess resources to meet the SSI guidelines. If your life insurance is in excess of the $1,500 limit and you would otherwise qualify for SSI, cashing in the life insurance may be the solution. You may be able to convert to a policy with no cash value or surrender the policy, and use the proceeds for a burial reserve. Discuss possibilities with Social Security and your insurance agent.