Did you know you can sell all or a portion of a life insurance policy, even term insurance?
(3 minute read)
When you think of life insurance, what comes to mind? Is it confusing? Do you have a vague understanding of how your policy affects your entire finances? Maybe you just think, “My loved ones get some money after I die.” Whatever you think, you might be right. And while it is true that your loved ones receive benefits after your passing, it is not the whole truth. You see, not all policies are created equal. Different types of life insurance policies offer different types of benefits. Some policies can even benefit you during your lifetime. In fact, in some instances, life insurance can even be considered an asset.
What types of life insurance are assets?
It’s important to note that there are different types of life insurance policies. In particular, there are two main policy categories that typically come to mind when considering if life insurance is an asset. These are permanent and term life insurance. Within the permanent category there are different types of policies. The most common types of permanent life insurance are universal and whole, and that’s what we will be focusing on in this post.
Term life insurance is purchased for a set period of time and only provides a death benefit, or a payment after you die. Term policies have no cash value unless the policy holder dies during the period outlined in the policy.
Universal and whole life insurance policies remain active for as long as the policy owner pays the premiums. In addition to the death benefit, universal and whole life insurance also include a cash value component. Essentially this means that a portion of the policy owner’s premiums are set into the cash value account and accrue interest from the insurance company. Over time, the cash value increases, exempt from taxes. Additionally, with universal and whole life insurance, the cash value can be accessed while the policy holder is still living and even act as an investment or savings account.
When a policy can build cash value over time or be converted into cash, it is considered an asset. Essentially, that means that if the worth of your policy, or the amount of money your policy pays out can increase it is an asset. If it has a fixed value, it is not.
Is permanent life insurance considered an asset?
At this point you may be wondering “Is whole life insurance considered an asset? Is universal?” The short answer is yes. Since whole and universal life insurance is a type of permanent insurance that includes a death benefit and accrues value over time, there is a cash value to the policy holder while they are still alive.
Additionally, because the policy owner can access a portion of the funds in account while they are still living, not only is universal and whole life insurance an asset on its own, but it also has the potential to build other assets for the policy owner.
Is term life insurance considered an asset?
Conversely, term life insurance policies only provide coverage for a certain period of time and a death benefit to your beneficiaries. Since term policies do not accrue value over time and cannot be converted into cash, they are not considered an asset.
When Is Life Insurance An Asset?
Now that we know some life insurance policies can be considered assets, you might be wondering if they are always considered assets. In particular you may be asking things like: “Is life insurance an asset in divorce?” or “Is life insurance considered an asset for mortgages?”
Just like before, whether it’s a divorce, mortgage, or other setting, term life insurance is not considered an asset because it has no immediate cash value.
However, because you can profit or gain value from universal and whole life insurance policies while you are alive, they can be considered assets during divorce proceedings. So, when filing for divorce, you may have to list the cash value policy as an asset. When it comes to mortgages, universal and whole life insurance policies can be considered an asset for the same reasons. If the cash value of the policy is higher than the fee you would pay to surrender the policy, mortgage underwriters consider it an asset during the application process.
The easiest way to determine if your life insurance policy is an asset or not is to answer the question, “does my policy have value before I die?” If the answer is yes, then your policy can be considered an asset. For help finding an answer, contact us today!
There is one caveat to this question however. Throughout this whole blog, we have assed life insurance as an asset in the most conventional sense. Particularly, we have defined assets the same way a financial advisor or bank might. But, if you take into consideration whether or not your policy can be converted into cash, there is another option. You can sell your policy, any policy, as a life settlement, and turn it into cash instantly. This includes term, universal and whole life insurance. So while it may not meet the conventional definition of a financial asset, or count in your favor when applying for a mortgage, all life insurance can be liquidated into cash by selling it. For more, check out our other blogs.
Did you know you can sell all or a portion of a life insurance policy, even term insurance? Selling an unwanted life insurance policy is no different than selling your car, home or any other valuable asset that will create immediate cash. Contact us today to learn more.
Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.
Life Settlement Advisors