The key loophole for assets is that if they are in a 529 account owned by a dependent student, they are considered parental assets for financial aid purposes and only considered available to pay college costs at a 5-5.64% rate (IM & FM) compared to 20-25% for student assets (FM & IM). Get as much as possible of that insurance payout into a 529. (ETA: for CSS reporting purposes for NYU, if required).
As others have mentioned, the income won’t be reported until a subsequent year and might not have to be reported at all. For a one-time payment, if needed, you can also likely get a professional judgement to avoid the potential double-whammy of increased income and assets for the payout.