Annual income does not include the following:
3. Lump sum additions to family assets such as inheritances, insurance payments (including payments under health and accident insurance and worker's compensation), capital gains and settlement for personal or property losses.
However, the money itself becomes an "asset" and the earnings from that asset become part of your income. See Page 6-2:
3. Interest, dividends, and other net income from real estate or personal property. Any withdrawal of cash or assets from an investment will be included in income, except to the extent the withdrawal reimburses the cash or assets which the family has invested. If the net family assets exceed $5,000, annual income (AI) shall include the greater of the actual income derived from all net family assets or a percentage of the value of such assets based on the current passbook savings rate.