Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insur...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years

UPDATED: Aug 6, 2021

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The Brief

  • In most cases, term life insurance is not considered an asset
  • Permanent life insurance is always considered an asset
  • The type of life insurance you have can affect your net worth and estate

Is life insurance considered an asset? Is any highly affordable insurance policy considered an asset? The answer is maybe. It depends on the type of life insurance policy you have and what you do with it.

Only permanent life insurance consistently counts as an asset. A term life insurance policy is (usually) not an asset because you do not stand to benefit from it monetarily while you are still alive.

If you’re thinking about buying term life insurance, this is one thing you need to consider.

Read on to learn what an asset is, what type of asset a life insurance policy is, and how it can affect your estate and net worth.

Before learning more about if life insurance is considered an asset, look at quotes from top life insurance companies in your area by entering your ZIP code into our free quote tool above.

What is an asset?

In short, an asset is something you own that has monetary value. An asset can increase in value over time. In other words, you can make a profit off it. In some cases, assets are subject to tax law.

There are generally two types of assets: tangible and intangible assets. Tangible assets include things like real estate, personal property, and money.

Intangible assets include things like buy-sell agreements, copyrights, goodwill, patents, stocks, and trademarks.

Now, there are also key distinctions among tangible assets pertaining to accounting. According to USLegal, Inc., current assets are those you can quickly convert to cash. Fixed assets can produce other goods and services.

Stocks, for example, are current assets. Land and machinery are examples of fixed assets.

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What type of asset is life insurance?

Life insurance would be a tangible, fixed asset because you can convert it into cash. However, not all life insurance is an asset based on these parameters.

Why Term Life Insurance Is Usually Not an Asset

In most cases, term life insurance is not considered an asset because it has no monetary benefit for you, the policyholder.

It only lasts for a set period (usually 10 to 30 years), and it will pay out a death benefit to someone else, should you die before the policy expires.

Why Permanent Life Insurance Is an Asset

Permanent life insurance is an asset because you can derive cash value from it while you are alive.

Whole life insurance offers a predictable death benefit and rates. According to the Insurance Information Institute, this type of insurance grows in value as your insurance company pays dividends on it.

You can borrow against the cash value of a whole life policy. However, it’s advised that you pay back what you borrow to keep your policy.

Universal life insurance accumulates its value based on a market rate of interest.

This type of policy also gives you the flexibility to adjust your death benefit (after passing a medical exam) or your rates once the policy accumulates cash value.

If you decide to borrow against a universal life insurance policy, you can do any of the following:

  • Use the excess funds to decrease the rates you pay.
  • Use those funds to pay for other expenses (again, you should pay back your loans).
  • Increase your death benefit.

Variable life insurance has the potential to accumulate a greater cash value than the other permanent life insurance policies.

With a variable life insurance policy, you have a savings account to invest in stocks, bonds, and mutual funds.

Variable life insurance comes with great risk, too. However, your insurance company may still guarantee that your death benefit will not fall below a certain level.

If you manage to increase the value of the policy, though, you essentially make a profit.

When Term Life Insurance Can Become an Asset

Now, there are some situations in which a term life policy can become an asset. Here are some examples.

  • When you sell the policy in exchange for cash, the profit you make will be part of your liquid assets. This is taxable
  • If you have convertible term life insurance, it will become a permanent life insurance policy once your initial term ends
  • If you die before the term ends, the death benefit could become an asset for your life insurance beneficiary

So, there are certain times term life insurance can be an asset.

Is life insurance considered an asset in an estate?

Yes, life insurance can be an asset with respect to your estate. According to the Internal Revenue Service, your insurance can count among your assets upon your death during an estate tax assessment.

The life insurance death benefit is usually tax-exempt. However, this is only true if your estate does not surpass the estate tax threshold.

Your term life policy will become an asset when your total assets are worth $11.7 million or more. That means your beneficiaries will pay an estate tax on their inherited assets.

Is life insurance part of your net worth?

If a permanent life insurance policy is part of your estate, it is part of your net worth as well. This is certainly the case when you are applying for a mortgage or certain benefits, or as part of divorce proceedings.

When you apply for a loan (particularly for a mortgage), the bank needs to know about your total assets. You will need to use some of your assets as collateral.

If you use a permanent life insurance policy as collateral and you die before the loan is paid in full, your death benefit will pay the difference on the loan. Your other beneficiaries will receive the rest.

If you apply for some benefits (like Medicare) in your state, your life insurance policy may or may not count as one of your assets. If the full value of your life insurance exceeds a certain amount, you can be ineligible for those benefits.

During divorce proceedings, you and your spouse will need to make a full accounting of assets. This will determine how you will split up your property, who will receive alimony payments, and how much child support one spouse will pay.

To review, life insurance is an asset when you can monetarily benefit from it. You will generally not benefit from your term life insurance policy.

You can, however, reap the benefits of permanent life insurance policies while you are still alive. Always consider how your life insurance policy affects your net worth and estate in your cost-benefit analysis.

We hope that we have fully answered the question “Is life insurance considered an asset?” If you would like to look at rates for top life insurance providers in your area, just enter your ZIP code into our free quote tool below.