Critical Illness insurance pay-out & benefits

Academic

Hi, a family member has been diagnosed with breast cancer (non-terminal). She had a small critical illness insurance policy and has been notified by the insurer that she is to receive a critical illness pay-out of £37,000 (paid into her bank account early next week). She is in receipt of a means tested benefit, namely, Child Tax Credits. She receives £129pw from this benefit. She also receives Carers Allowance (about £75pw), Child Benefit and PIP. She pays full council tax and full rent (council property).

Can anyone advise if she needs to inform the DWP about the insurance pay-out (I'd assume so). If so, how will this affect her benefits.  Also, do the DWP have rules about how the insurance money should be used?

Related to this does anyone know if the insurance pay-out is taxable? Or is that a question for another board?

Any advice would be much appreciated, she wants to remain within the DWP rules but wants to have some background info before approaching them. Thanks in advance.

Brie

I don't think it would qualify as income so not be taxable (happy to be corrected on this)

But means tested benefits are likely to be affected as she will suddenly have a substantial amount in the bank.  

HillStreetBlues

I agree the payout isn't taxable.

Newcad

A lump sum like this isn't  income, so it's the capital amount that needs to be considered.

PIP is not means tested so not affected by capital.

I don't belive that CA is means tested.

Child benefit shouldn't be affected in these circumstances.

Tax Credits I don't believe that the capital amount will count either.

However that then leaves the question of the ongoing Tax Credits migration to UC - and in such a migration the capital above £16k will be disregarded for 12 months.

She should probably not consider claiming UC on health grounds before getting a migration notice though - If she does that then the capital being above £16k would mean that she would not be eligible for UC - it is only once they send you a migration notice that the "over £16k" disregard kicks in.

If she does get a migration notice and qualifies for UC then the Social Rent would be paid in full as part of the UC.

Council Tax is tricker because each council has it's own rules.

HillStreetBlues

Newcad said:

Council Tax is tricker because each council has it's own rules.

AFAIK £37k exceeds every councils upper capital limit.

Newcad

Agreed, but as full CT is being paid already then it won't make a difference unless the (non-terminal) cancer diagnosis triggers some local rule.

I was looking more at an (unlikely I admit) possible reduction.

Alice_Holt

 Child Tax Credits, Carers Allowance, Child Benefit and PIP are not affected by this capital.

Note that Tax Credits can be affected by interest earned from this money. 
https://www.moneyhelper.org.uk/en/benefits/problems-with-benefits/how-do-savings-and-lump-sum-pay-outs-affect-benefits#:~:text=How your savings affect your,t affect your tax credits.


Housing Benefit and Council Tax will be affected by capital - so she needs to inform her council. Make them aware that this comes from a critical illness insurance pay-out, and ask them to check if this can be disregarded. I don't think it is - but it's worth asking the question.

sammyjammy

Academic said:

Hi, a family member has been diagnosed with breast cancer (non-terminal). She had a small critical illness insurance policy and has been notified by the insurer that she is to receive a critical illness pay-out of £37,000 (paid into her bank account early next week). She is in receipt of a means tested benefit, namely, Child Tax Credits. She receives £129pw from this benefit. She also receives Carers Allowance (about £75pw), Child Benefit and PIP. She pays full council tax and full rent (council property).

Can anyone advise if she needs to inform the DWP about the insurance pay-out (I'd assume so). If so, how will this affect her benefits.  Also, do the DWP have rules about how the insurance money should be used?

Related to this does anyone know if the insurance pay-out is taxable? Or is that a question for another board?

Any advice would be much appreciated, she wants to remain within the DWP rules but wants to have some background info before approaching them. Thanks in advance.

If that's her only income how and why is she paying her own full rent and council tax?

Academic

Hi All, Thank-you for your replies, particularly Newcad for clearly spelling it out, much appreciated.
The family member isn't immediate family so I'm getting info via others; also, she is going into hospital next week for mastectomy, etc. so don't want her mind on this atm, she needs to concentrate on her health.
Once she has had some time to recover we'll come back with more info and hopefully you kind people will be able to help again.