Is life insurance an asset? Whether insurance is an asset is a great question and doesn’t have a precise answer.
It might appear that life insurance isn’t an asset on the surface because you can’t touch it or spend it as you can with money in a bank account.
However, when you look at the big picture, life insurance is an integral part of your overall financial security and should be considered an asset.
Let’s look at life insurance as an asset class why it is so important and what makes it a valuable investment.
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Is Life Insurance An Asset?
What Is an Asset? According to Investopedia, an asset is any tangible or intangible value resource owned by an individual or a company with the anticipation that it will provide a future benefit.
When most people think of assets, they think of cash in the bank, mutual funds, stocks, and real estate. However, life insurance is an essential part of any financial plan and can be considered an asset.
All life insurance policies are regarded as assets to your family because the death benefit will eventually be paid out to them when you pass away.
Is term life insurance an asset?
Term life is not an asset while alive because it only pays out a death benefit and does not have cash value accumulation.
Is whole life insurance an asset?
Universal and whole life insurance are assets because they build cash values that may be withdrawn or borrowed against while you are still alive.
Because the interest, dividends, or capital gains from the cash value aren’t subject to taxes, permanent life insurance is a popular asset-building tool.
As your cash value grows, your life insurance can supplement your retirement income or provide liquidity to pay unforeseen expenses.
Types of Cash Value Life Insurance
Types of Cash Value Life Insurance- Whole Life – Whole life is a form of permanent life insurance that protects you for your entire life. Whole-life offers guaranteed cash values and dividends that accumulate over time.
- Variable Universal Life – VUL is another form of permanent life insurance where cash values are invested in sub-accounts containing stocks and bonds.
- Indexed Universal Life – IUL does not offer a guaranteed fixed interest rate. Instead, your cash values are linked to the performance of a financial index such as the S&P 500 Index.
- Guaranteed Universal Life – GUL allocates your cash value to either a fixed or equity index account and provides lifetime coverage.
- Hybrid Long-term Care Insurance – Hybrid Life is a universal or whole life policy with a long-term care rider. The LTC rider grants you access to part of the death benefit to subsidize your nursing care if you can no longer care for yourself.
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How Is Life Insurance an Asset Class
How Is Life Insurance an Asset ClassLife insurance provides financial security for your loved ones because proceeds can be used to cover living expenses if something happens to you.
The death benefit is not part of your net worth, but the cash value of policies are assets that count towards your net worth.
Let’s look at the many ways life insurance is considered an asset while alive or when you die.
Retirement Planning with Life Insurance
Retirement Planning with Life InsuranceUniversal and whole life insurance can improve retirement income by providing an additional stream of tax-free income.
Life insurance savings accounts can be a great way to save for long-term financial goals.
Permanent coverage allows you to take tax-free policy loans from the cash value in your policy to help supplement your income, preserve assets, and minimize taxes.
Infinite Banking and Life Insurance Retirement Plans use cash-value life insurance as a component of a diversified investment portfolio.
These strategies use overfunded or limited-pay life insurance to accelerate cash value growth by prepaying for the entire policy in a set number of years.
Because cash value life insurance is a liquid asset, it offers an easy way to fund major expenses that can come up during life’s journey.
For people that have maxed out their qualified retirement plan contributions, investing in life insurance can help to supplement income in retirement.
Estate Planning with life insurance
Estate Planning with life insuranceThe IRS assesses an estate tax on property transfer upon death for wealthy people with a large estate. Plus, many states impose estate or inheritance taxes.
After you die, your beneficiaries will have to pay federal estate taxes if your total estate value exceeds the estate tax exemption amount.
In 2022, the estate tax exemption is $12.06 million for individuals, doubling to $24.12 for married couples.
For affluent people with illiquid assets such as company ownership or real estate, it can be challenging for heirs to sell these assets quickly.
Setting up an ILIT funded with a survivorship life insurance policy can deliver immediate estate liquidity to cover potential estate taxes. Life insurance liquidity refers to the ability to access your death benefit instantly.
estate equalization with life insurance
estate equalization with life insuranceWith estate equalization, the family business is given to one child actively involved with the company.
Then a permanent insurance policy is purchased to provide an equivalent benefit to the children not involved with the business.
So, a business life insurance policy can help with estate equalization and distribution by dividing assets equally among heirs.
Maximizing wealth transfer
Maximizing wealth transferPermanent life insurance is a tax-efficient way to optimize the distribution of assets to a spouse, child, or charity organization.
You can diversify against a volatile stock market by buying a life insurance policy that passes tax-free assets to beneficiaries.
A second-to-die policy offers the best return on investment for transferring wealth to the next generation.
The death benefits of a life insurance policy are paid directly to a trust or heirs when you die, which bypasses probate.
Funding LONG-TERM CARE
Funding LONG-TERM CARE Hybrid long-term care insurance and LTC riders let you access a portion of the policy’s death benefit to pay for a nursing home or assisted living facility expenses.
Each insurance company will vary in the amount of money you can receive, from 1% to 4% of your total death benefit.
An LTC rider will add to your monthly premiums and are only available on universal life and whole life insurance.
Living Benefits Riders
Living Benefits RidersA critical illness, chronic illness, and accelerated death benefit rider allow you to receive a cash advance from the policy before death.
These living benefits riders can provide peace of mind knowing that your loved ones will be cared for if something happens to you while you’re still living.
You must be critically or terminally ill to get benefits, and any money you receive will reduce your death benefit.
Divorce
DivorceA divorce decree might mandate that parties split assets, including the cash values of a life insurance policy.
Many divorce settlements may also require a life insurance policy to provide alimony or child support if the income earner dies.
A great starting place could be to look at the amount of alimony or child support you will owe until the youngest child reaches the age of eighteen.
Collateral for a Loan
Collateral for a Loan When looking for a business loan, one of your bank’s many determining factors for approval is whether you have life insurance.
While life insurance is not always required to get a business loan, it can help prove to your bank that you’re serious about your company and have a plan if something happens to you.
A life insurance policy can be used as collateral for a loan through a collateral assignment.
If you pass before paying off the loan, the bank receives your death benefit to pay off the loan, while beneficiaries receive the remaining balance.
Sell Your Life Insurance Policy
Sell Your Life Insurance PolicyA life insurance policy is an asset you own and have control over. You could potentially sell your life insurance policy for a payout with a Life Settlement or a Viatical Settlement as a policy owner.
If you have a limited life expectancy or are terminally ill, you might be able to sell your policy to a viatical settlement company.
The settlement company will pay you a percentage of the death benefit to buy your policy.
You will get a portion of your policy death benefit while you are still alive. The settlement company receives the remaining death benefit once you pass away.
Affordable Life USA has decades of experience offering many strategies that can serve various planning objectives for your family.
If you have any questions about what kind of coverage may work best with your specific situation, contact us today!
FAQ
How long is the Application Process?
The underwriting time varies depending on whether your agent recommends the no exam or exam underwriting process.
It some case it may only take a week to approve your policy!
However, if a medical exam and medical records are needed from your doctor, the average time is 2-3 weeks from when you take your examination.
Can I qualify with a medical condition?
Getting great rates on life insurance with a pre-existing medical condition can be relatively easy or more complicated, depending on the details of your specific medical condition.
With many common treatable conditions like hypertension, cholesterol, depression, and diabetes, getting approved with excellent rates is possible.
We have the niche company relationships and proven strategies to secure the lowest prices available if you are being treated for one of these common ailments.
Are you attempting to get life insurance for pre-existing conditions that are more serious?
Then, we always recommend doing a little more preliminary research to get the coverage with the rates you deserve hopefully.
We use clinical underwriting to help you obtain life insurance for pre existing conditions that are more complicated like heart disease and cancer.
Let us help you by applying our knowledge of life insurance underwriting to find you the cheapest life insurance policy based on your health and lifestyle.
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Affordable Life USA is a leading independent insurance agency offering comprehensive life insurance solutions to clients nationwide.
Eric Van Haaften, LUTCF
1-877-249-1358
