Did you know you can sell all or a portion of a life insurance policy, even term insurance?
(4 minute read)
Your net worth compares your assets to your debts, which is a key measure of your overall financial health and success. Assets help you fund goals, absorb unexpended payments, and pay expenses.
An asset is something a person owns or controls. Assets typically have some type of value the person that owns it can access, or at least can be on the receiving end of a return on their investment.
There are two asset classes: non-liquid and liquid assets. Non-liquid assets include things like valuable items, cars, and homes. Liquid assets include things like savings accounts and retirement that can gain value over time.
In some circumstances, life insurance is an asset. So you can plan effectively for your financial success, let’s dive deeper into what kinds of life insurances are assets, and which ones aren’t.
Does Whole Life Insurance Count as an Asset?
Whole life insurance and other forms of cash value life insurance—such as universal and variable life insurance—are liquid assets.
With a whole life insurance policy, a portion of your premiums go into a tax-deferred savings component, often referred to the cash value of the policy. Since the policy’s cash value grows over time and the person who owns it can withdraw from those funds like an investment, most divorce proceedings or mortgage underwritings will include it in the value of your estate.
It is very important to know this if your assets are subject to estate tax, since the cash value and the death benefit are included in your estate’s total value.
Does Term Life Insurance Count as an Asset?
Term life insurance is not considered an asset. This is because a term life insurance policy lasts for a set period of time and only pays the death benefit to your specified beneficiaries if you pass away.
An asset’s main objective is for you to collect a payout from it in the future. With term life insurance, when the policy is paid out, it only benefits your beneficiaries. There are a few rare cases where proceeds from a term life insurance policy can become an asset.
- If the term policy is sold for profit while you are alive. Any earnings count toward your liquid financial assets and are subject to taxes.
- If your total assets are $11.7 million or more. If this is the case, your beneficiary might need to pay a gift or estate tax on the assets they inherit.
Most assets take decades to accumulate and appreciate in their full value. Because of this, you should buy a term policy in addition to having your assets. If you pass away before your investments have matured, the death benefit from the life insurance policy you purchase will provide additional monetary support to your dependents.
Is Whole Life Insurance Worth the Investment?
For most individuals, whole life policies are generally not a good investment, even though the cash value of whole life insurance may qualify as an asset.
When looking at long-term investments, other options such as a 401(k), mutual funds, IRA, or term life insurance policies will provide better returns than a whole life policy. Cash value policies have limited investment options, relatively low rates of return, and high fees. In fact, whole life insurance policies are five to 15 times more expensive than other life insurance policies, like an equivalent term policy.
You’re In Trusted Hands with Life Settlement Advisors
If you have questions about selling your life insurance policy, reach out to us at Life Settlement Advisors to get the answers you need. Our team of experts are ready to answer your questions and help you explore your options.
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.
I am always happy to answer any and all questions about these life-transforming transactions.
Life Settlement Advisors