The life insurance is a separate "asset" than his disability payments.  Disability payments can be dependent on the dependant the recipient has, especially if that person is deemed the recipient's caretaker.   While a significant cut in disability benefits can occur, if your father has another recipient, say for example he lives with you, I believe you might be able to help him obtain an increase in his benefits probably to what the original amount was initially.  In order to determine just what your father's rights are with respect to his disability benefits, make an appointment with a local advisor at the VA (many have volunteer advocates) who can go over options with you and your family.