Only some types of life insurance are considered an asset — something you own that has economic value and is expected to provide a future financial benefit. People often have both tangible assets — for example, a home and other valuable items — and liquid assets, including retirement and savings accounts, which will hopefully gain value over time.
Whether a life insurance policy is an asset depends on whether you can benefit financially from your policy while you’re alive.
Term life insurance — which only pays out to your dependents in the event of your death — is not an asset. Whole life insurance, and other types of permanent life insurance with a cash value component, are considered assets because you can withdraw funds from your policy while you’re alive.
Is term life insurance an asset?
Term life insurance is not considered an asset because you can’t get value from it when you’re alive.
A term life insurance policy is a form of protection that lasts for a set period of time (usually 10 to 30 years) and pays a death benefit to your beneficiary if you die while your policy is active. If you live longer than the policy lasts, you won’t receive any money.
In rare cases, proceeds from a term life policy might become an asset if:
You sell the policy for a profit. Any earnings from the sale of a life insurance policy count as an asset and are subject to income tax.
Your assets total $13.61 million or more. Your beneficiary may need to pay an estate or gift tax on the total assets they inherit. (Note that $13.61 million is the current estate tax threshold; it can change annually.) [1]
While not an asset, term life insurance is a useful tool to protect your assets and ensure that your family doesn’t suffer financially if you die.
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Is whole life insurance an asset?
Unlike term life insurance, whole life insurance and other forms of cash value life insurance such as universal and variable life insurance are considered assets, particularly during divorce proceedings or mortgage underwriting.
With whole life insurance, a portion of your premiums goes into a tax-deferred savings account, called the cash value of the policy. (The exact amount depends on the terms of your individual policy.)
Because the policy’s cash value earns interest over time and you can withdraw from those funds, the amount is included in the value of your estate.
Learn more about liquidity in cash value life insurance
Is whole life insurance a good investment?
Though the cash value of whole life insurance usually grows over time, for most people, a whole life policy isn’t the best investment.
Cash value policies come with limited investment options, high fees, and relatively low rates of return. Over the long run, dedicated investment vehicles — like a mutual fund, 401(k) or IRA — will likely provide better returns than a whole life policy. Whole life insurance is also significantly more expensive than comparable term life policies.
If you’re already maximizing contributions to tax-advantaged accounts and looking for another way to supplement your investments, it might make sense to add a permanent life insurance policy to your financial plan. Speaking with a financial advisor can help you determine if a cash value policy is right for you.
Learn more about why life insurance isn’t the best investment
Is life insurance considered an asset in a divorce?
The easiest way to identify whether your life insurance policy is an asset is to consider whether you can profit from it while you’re alive. A policy with a cash value that you can access while you’re alive may be counted as an asset.
Term life insurance won’t be considered an asset in a divorce because it doesn’t have a cash value component. However, a whole life policy, or any other form of cash value life insurance, is an asset in divorce proceedings.
This means that you need to list any cash value policies as an asset when dividing property during your divorce. That includes joint or survivorship policies that insure you and your spouse. Though you may be able to split a joint policy in the event of a divorce, you’ll still need to count it as an asset first.
If you’re unsure about how to manage your life insurance coverage during a divorce, a licensed financial advisor can clarify the particulars of your situation.
