Yes, the life insurance proceeds will count as a resource for SSI purposes and will eliminate or reduce your SSI until your resources fall under the SSI limit of $2000 for a single person or $3000 for a married couple. So you could have the proceeds paid out to you in installments to keep it under the $2000/3000 resource limit for SSI purposes. Or you could get a SPecial Needs Trust set up and have the money go directly into the trust, but there will be a cost for setting up the trust.
Per the IRS --> Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price.
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My colleague is correct. SSA should be told about any - and all - money, gifts, income, etc - you receive. You should make sure you get a receipt or a copy of a form called a Report of Contact showing you reported the money. For larger amounts, SSA will stop SSI benefits for a cetain time period. Smaller amounts may have little or no impact, but the application forms and documents you signed say you agreed to notify them of these types of things.
Good luck to you.
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