WAG 08-01-08-c: Insurance Settlements

PM 08-01-08-c.

Exempt the amount of an insurance payment spent or contracted to be spent within 60 days of receipt if it is used to:

  • repair or replace a lost resource or
  • pay for funeral, burial, and/or medical expenses of the deceased from a life insurance policy death benefit.

Example 1: Ms. H's 1981 Oldsmobile was totaled after an accident in January. In March, Ms. H received a $900 insurance payment to replace the car. On 03/12, Ms. H used $600 of the insurance money to buy a 1979 Dodge to replace the wrecked car. Exempt the $600 used to replace the car. Budget the remaining $300 as a nonrecurring lump sum.

Example 2: In May, Ms. W's homestead property burned. Total loss to the house and its contents was estimated at $35,000. In July, Ms. W reported the insurance settlement and provided the FCRC with a builder's estimate and signed contract that the house would be rebuilt for $35,000. Exempt all of the $35,000 insurance settlement.

Example 3: A client is the beneficiary of a $2,000 life insurance policy. If $1,800 is spent for the funeral of the insured, budget $200 ($2,000 less $1,800) as lump sum income.