<p>Sorry, I didn’t come back to this until this morning. It is a bit of a gray area if you know you are getting the money but simply put off taking possession until after you file the FAFSA. You don’t “have” the money, but you really do have it … you just chose to put off receiving it. The Ask Kantor response is in reference to a question about an estate … which is a bit different from an insurance policy in that the true worth of the estate is not known until it is actually settled; an insurance policy is a “for sure” amount & is already available (does not require settlement). </p>
<p>To be honest, this particular situation is not directly addressed in the guidance FA professionals use. This IS part of the guidance: " … the cash value or equity of a whole life insurance policy isn’t reported as an asset, but an insurance settlement does count as income. The full amount of the distribution is reported, whether it was a lump sum or annual distribution, and it will count as taxable or untaxed income, as appropriate." This means that you will have to report it as untaxed income when you get it, anyway. You will spend down the asset, but you will have the reportable income. If I look at it this way, I would say that you wouldn’t report it when you don’t have it yet, because you WILL have to report it when you do get it. You can make the case not to report it until you get the distribution … then you will have to report the distribution as untaxed income (and the corresponding asset, unless you spend it down).</p>