Determining eligibility for Supplemental Security Income is an extremely complicated process that involves a thorough analysis of your entire financial situation. Every aspect of your finances is evaluated to determine if you meet established guidelines for collecting benefits. Life insurance is an asset that could play a major role in your ability to collect SSI and the amount of your award. Understanding how life insurance affects eligibility will allow you to more properly plan for your application.
Ownership of Life Insurance
You are not prohibited or otherwise excluded from purchasing a new life insurance policy just because you are currently collecting SSI benefits. The Social Security Administration cannot interfere with your right to buy new coverage. However, it may be in your best interest to consider how buying a new policy might impact your SSI benefits.
Is Your Policy a Resource?
SSI eligibility is based on your current assets and resources and your ability to earn an income or otherwise acquire money to live. Any life insurance policies you own must be disclosed and will undoubtedly be considered when your SSI application is processed. Each type of life insurance policy is treated differently for the purposes of determining your eligibility to collect SSI benefits.
Cash Surrender Value
If your policy is a permanent one, its cash surrender value will likely be counted as a resource. Cash surrender value is the amount of money you would receive from the life insurance company if you canceled your policy. Only permanent life insurance products accumulate cash value, and that value differs based on the policy type and the premium. The cash surrender value is considered when your benefits are being determined.
Term Life Insurance
Owning a term life insurance policy, regardless of the size of the death benefit, has no effect on your SSI eligibility calculations. Term life insurance contracts have no present value and do not accumulate equity like permanent policies. The only value held by a term life insurance policy comes when the insured person dies, at which time the policy proceeds are paid to the beneficiaries. Term insurance presents no risk or danger to SSI benefit calculations.
- Social Security Administration: Supplemental Security Income (SSI) Benefits
- American Council of Life Insurers. "ACLI 2019 Life Insurers Fact Book," Page 64. Accessed Sept. 24, 2020.
- AllState. "What Is Cash Value Life Insurance?" Accessed Sept. 25, 2020.
- AIG Direct. "Whole Life Insurance." Accessed Sept. 25, 2020.
- Internal Revenue Service. "Life Insurance & Disability Insurance Proceeds." Accessed Sept. 24, 2020.
- Northwestern Mutual. "Pros and Cons of Whole Life Insurance." Accessed Sept. 25, 2020.
- U.S. Securities and Exchange Commission. "Variable Life Insurance." Accessed Sept. 25, 2020.
Gregory Gambone is senior vice president of a small New Jersey insurance brokerage. His expertise is insurance and employee benefits. He has been writing since 1997. Gambone released his first book, "Financial Planning Basics," in 2007 and continues to work on his next industry publication. He earned a Bachelor of Science in psychology from Fairleigh Dickinson University.