VA Benefits and Life Insurance Interaction (2026)

VALife, S-DVI, and what the VA actually offers now

VALife — Veterans Affairs Life Insurance — opened for applications on January 1, 2023. Its terms are unusual and worth stating precisely:

• Guaranteed acceptance whole life. No medical exam, no health questions, no rating.
• Available to veterans age 80 or under with a VA service-connected disability rating of 0% to 100%. A 0% rating qualifies, which many veterans do not realize.
• Coverage from $10,000 to a maximum of $40,000, in $10,000 increments.
• A two-year waiting period. If the insured dies within those two years, the program pays back premiums plus interest rather than the face amount.
• Premiums are set by age at application and do not increase afterward. Cash value begins to accrue after the second year.

VALife replaced Service-Disabled Veterans Insurance, which closed to new enrollment on December 31, 2022. Veterans who already held S-DVI coverage were generally permitted to keep it, and in some cases to hold both.

Two things follow for anyone thinking about a policy sale. First, a $40,000 face amount is below the practical floor of the life settlement market by a wide margin; there is no secondary market at that size, and any solicitation suggesting otherwise deserves scrutiny. Second, the two-year waiting period means a VALife policy in its first 24 months has essentially no death benefit to sell.

On the group side, Servicemembers’ Group Life Insurance rose to a $500,000 maximum effective March 1, 2023. Veterans’ Group Life Insurance lets a separating servicemember continue that coverage; the application window without any health questions runs 240 days from separation, extending to one year and 120 days with evidence of insurability. Missing the 240-day window is one of the most common and least reversible mistakes in this whole area — see the SGLI and VGLI conversion options and the retiree conversion timeline.

Federal law places significant restrictions on assigning SGLI and VGLI coverage, with a narrow statutory exception created in 1996 for certain viatical arrangements involving terminally ill members. The rules are specific and the VA’s own guidance controls; do not rely on a general summary. Whether SGLI or VGLI can be sold at all is the first question to settle, before any other planning.

The Aid and Attendance asset test, and where a policy sits in it

Aid and Attendance is not a separate benefit. It is an increased monthly rate paid on top of VA pension — a needs-based program — for a wartime veteran or surviving spouse who requires the aid of another person for daily activities, is bedridden, is in a nursing home due to mental or physical incapacity, or has severely limited eyesight.

Because it rides on pension, it inherits pension’s financial tests. Under 38 CFR 3.274 and 3.275, the VA computes net worth as the claimant’s assets plus annual income. If that combined figure exceeds the net worth limit, the claim is denied. The limit is indexed each December 1 to the Social Security cost-of-living adjustment; it stood at $159,240 for the period beginning December 1, 2024. Confirm the current figure directly with the VA before relying on it, because it moves every year.

Three exclusions matter more than the rest:

• The primary residence is excluded, along with a reasonable lot area generally capped at two acres unless the additional acreage is not marketable.
• Personal effects consistent with a reasonable mode of life are excluded.
• The value of life insurance is excluded from countable assets. This is the single most important line on this page, and it is the opposite of the Medicaid rule.

That last point deserves emphasis because families routinely get it backwards. Medicaid counts the cash surrender value of most life insurance once total face value on the insured exceeds a small threshold, which is why policies get surrendered during Medicaid planning. The VA does not count it for pension net worth at all. A veteran holding a whole life policy with $90,000 of cash value can qualify for Aid and Attendance with that value untouched — and would immediately fail the test if that same $90,000 were sitting in a savings account. The mechanics are laid out in more detail in the Aid and Attendance asset test guide and, for the contrasting rule, in how life insurance counts as a Medicaid asset.

The look-back, and how a sale can create a penalty

Before October 18, 2018, VA pension had no asset transfer penalty. A claimant could give away assets and apply the next month. The VA’s final rule published in 2018 ended that, adding 38 CFR 3.276, which established:

• A 36-month look-back at asset transfers preceding the claim, applying to transfers made on or after October 18, 2018.
• A penalty period for covered assets transferred for less than fair market value, computed by dividing the covered asset amount by the maximum annual pension rate for a veteran with one dependent in need of aid and attendance, then dividing by 12, with the result capped at five years.

Two consequences follow for a policy decision:

Giving a policy away can be a penalized transfer. Transferring ownership of a policy with cash value to a child for nothing may be treated as a transfer of a covered asset. The irony is sharp: the policy was excluded while the veteran owned it, and giving it away can create a penalty where holding it created none. In most cases, doing nothing is the better move.

Selling a policy at fair market value is not a penalized transfer, but the proceeds are countable. A sale for adequate consideration does not trigger 3.276. It simply moves the value from an excluded column into a counted one. Under 38 CFR 3.272, profit realized from the disposition of property other than in the course of business is excluded from income — but the resulting cash is an asset from the month it lands, and assets are what the net worth test measures.

Timing is therefore everything. A sale that closes the month before a claim is filed can be the reason the claim is denied.

Asset	Counted for VA pension net worth?	Counted for Medicaid long-term care?
Life insurance cash surrender value	No — excluded	Usually yes, once total face exceeds the state threshold
Primary residence (up to about 2 acres)	No — excluded	Usually excluded up to an equity cap, subject to estate recovery
Cash from selling a policy	Yes — counted from receipt	Yes — counted, and reviewed under the look-back
Gifted policy or asset	36-month look-back, penalty up to 5 years	60-month look-back in most states
Irrevocable burial fund within limits	Generally excluded	Generally excluded within state limits

Every alternative, ranked for a veteran household

Ranked by how often each is correct when VA benefits are in the picture.

1. Do nothing to the policy and file the VA claim. Because cash value is excluded from VA net worth, the default answer is more often "keep it" here than in almost any other planning context. Start from that presumption and require a reason to depart from it.

2. Use the unreimbursed medical expense deduction. Under 38 CFR 3.272(g), unreimbursed medical expenses that exceed 5% of the maximum annual pension rate reduce countable income. Assisted living costs, in-home aide costs, Medicare premiums, and prescription costs commonly qualify. This is the lever that gets more households approved than any asset maneuver.

3. Accelerated death benefit or chronic illness rider. Advances from a rider are generally treated as amounts received under the contract on account of illness. They do not require selling anything. Confirm with the VA how the specific payment is treated before drawing it, since the cash becomes an asset once received.

4. Policy loan. Borrowing against the cash value produces cash without a sale and without a transfer. The loan proceeds sitting in an account are still a countable asset, so this does not solve the net worth problem — but it solves a cash-flow problem without disturbing the excluded status of the remaining policy value.

5. Reduced paid-up. Stops the premium permanently at a lower guaranteed face amount. Useful when the premium is the pressure point and the coverage is still wanted.

6. Extended term. Keeps the full face amount for a limited number of years with no further premium. Reasonable when the need has a horizon.

7. 1035 exchange. Occasionally used to move cash value into a hybrid long-term care contract. Requires insurability and needs careful review against both VA and Medicaid rules, which treat these products differently.

8. Surrender. Turns an excluded asset into counted cash, taxes the gain, and ends the coverage. It is difficult to construct a scenario where this is the best option for a household pursuing Aid and Attendance.

9. Life settlement. A sale to a licensed institutional buyer. Real value exists for impaired insureds over 70 holding policies above roughly $100,000 in face amount. It is a legitimate option when the coverage is genuinely unwanted, the premium is a burden, and VA pension is not part of the plan — but it is the last item on this list for a reason.

When selling is the wrong answer

When a VA pension or Aid and Attendance claim is pending or planned. This is the headline. You are trading an excluded asset for a counted one, and possibly for a denial. If the household needs both the cash and the benefit, that is a conversation for an accredited VA claims agent or attorney before any policy paperwork is signed.

When the policy is VALife or S-DVI. At a $40,000 maximum face amount, there is no functional secondary market. Policies below the market’s size floor do not attract bids, and the two-year VALife waiting period removes the death benefit entirely during that window.

When the policy is SGLI or VGLI. Assignment is restricted by federal statute. Anyone offering to buy SGLI or VGLI coverage outside the narrow statutory exception is a reason to stop and verify with the VA directly.

When the policy is FEGLI and the household is federal-retiree. The Federal Employees’ Group Life Insurance program has its own assignment rules and its own premium escalation schedule after age 65. Read the FEGLI analysis before treating it like a private contract.

When a surviving spouse will need Dependency and Indemnity Compensation planning. If the veteran’s death will change the household’s benefit structure, the private death benefit may be the bridge. Model the survivor’s income before and after before selling the bridge.

When the cash is not actually needed. Proceeds that would sit in an account do nothing but count against net worth and reduce the estate. The default remains: keep the excluded asset excluded.

When the veteran’s health is good. Offers track life expectancy. A healthy 70-year-old veteran will generally see offers that do not justify giving up the coverage, and often no offers at all.

Pine Lake Life Solutions provides education and a free policy review. We do not purchase policies and are not licensed in every state, and we do not give legal, tax, or benefits advice — VA claims work belongs with an accredited representative. If you send the policy cover page, we will tell you what the policy is and whether a sale is even theoretically on the table, including when it is not. (305) 209-7183.

Documents to gather before the first call

Whether the call is to a VA-accredited agent, an elder law attorney, or a policy review service, the same file serves all three.

• DD Form 214 or other separation documents establishing wartime service dates. Pension eligibility requires at least 90 days of active duty with at least one day during a VA-recognized wartime period, and for those who entered service after September 7, 1980, generally 24 months of continuous active duty.
• VA disability rating decision letter, if any. This drives VALife eligibility.
• VA Form 21-2680, Examination for Housebound Status or Permanent Need for Regular Aid and Attendance, completed by the physician. Without it, an Aid and Attendance claim rarely succeeds.
• Twelve months of unreimbursed medical expenses, itemized. Facility invoices, aide invoices, Medicare and supplement premiums, prescriptions.
• The policy cover page for every life insurance policy in the household, plus the most recent annual statement showing cash value and any loan.
• Bank and brokerage statements for the last three months, and any record of gifts or transfers made in the last 36 months.

Assemble this once and the VA claim, the policy review, and the elder law consultation all run off the same folder. Assembling it three times is how families lose months they cannot recover.

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Frequently Asked Questions

Does the VA really ignore my life insurance cash value?

For pension net worth purposes, the VA excludes the value of life insurance from countable assets. That is a genuine and deliberate difference from Medicaid, which counts cash surrender value once total face value on the insured exceeds a state threshold. Because the two programs treat the same asset in opposite ways, households pursuing both need the analysis done together rather than separately. Confirm the current treatment with an accredited VA representative before acting.

Can I sell a VALife policy?

As a practical matter, no. VALife caps coverage at $40,000, which is far below the size at which institutional buyers will bid, and the program’s two-year waiting period means there is no full death benefit to value during that window. Any offer to buy VALife coverage should be treated as a warning sign rather than an opportunity. If someone has solicited you about a VA-issued policy, report it to the VA and to your state insurance department.

I already sold a policy last year. Have I ruined my Aid and Attendance claim?

Not necessarily. A sale for fair market value is not a transfer for less than fair market value, so the 36-month look-back penalty in 38 CFR 3.276 generally does not apply. What matters is where the money is now. If it has been spent on care, medical costs, home repairs, or debt, it is no longer a countable asset. Document the spending carefully, because the VA will ask, and unsupported spend-down claims cause denials.

What is the difference between Aid and Attendance and a service-connected disability rating?

They are different programs with different tests. A service-connected disability rating compensates for a condition connected to service and has no income or asset test at all. Aid and Attendance is an increase to needs-based VA pension and does have income and asset tests. A veteran can hold a 0% service-connected rating, which qualifies for VALife, while separately qualifying or not qualifying for Aid and Attendance on financial grounds.

Should I file the Intent to File form even if I am not sure I qualify?

Generally yes. VA Form 21-0966 costs nothing, requires no evidence, and preserves a potential effective date for one year. If the claim is later approved, benefits can be paid back to that date. If it is never filed, the effective date is the date of the eventual claim and the earlier months are simply lost. Families who assemble documents for four months before filing frequently give away four months of benefits for no reason.

My father is in assisted living and his income is too high. Is he automatically disqualified?

Often not. Under 38 CFR 3.272(g), unreimbursed medical expenses exceeding 5% of the maximum annual pension rate reduce countable income, and assisted living charges frequently qualify when the resident requires assistance with activities of daily living or the facility provides custodial care. Many households that appear over the income limit on paper qualify once the facility invoices are properly documented. Have an accredited representative run the calculation.

Related Reading

• Va Aid Attendance Policy
• Veterans Aid Attendance Asset Test
• Sgli Vgli Conversion Options
• Can I Sell Sgli Or Vgli Coverage
• Military Retiree Sgli To Vgli
• Policy Too Small To Sell
• Life Insurance Counts Medicaid Asset
• Can I Sell A Fegli Policy
• Settlement Proceeds Affect Ssi

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Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.