Many people have life insurance because they believe it is a necessity.
Though life insurance is a wise financial decision in the case of tragedy, some may be unsure about getting life insurance. This is especially true because many people see it as a liability.
So, is life insurance an asset or a liability? Here in this article, we will answer that question for you.
Is Life Insurance An Asset?
The short answer to that is it depends. If a life insurance policy accrues cash value, it is considered an asset.
So, what exactly is the monetary value of the asset? A portion of your premiums for a permanent life insurance policy may be able to be deposited into a tax-deferred investment vehicle if you purchase the policy through a financial institution.
This money has the potential to earn interest and increase in value as time progresses. Because you may be able to access this money, it is referred to as the cash value of the asset.
You can do one of two things to get your hands on this money: either withdraw the money and surrender the policy or use it to secure a loan against it.
When it comes to how your money grows, not all cash-value life insurance policies are created equal. You have several options when deciding which type of cash-value policy to get. The main ones are:
Whole Life Insurance:
It is possible that the premiums on a whole life insurance policy will remain constant over time. The policy’s death benefit and cash value may be guaranteed at the time of its issuance.
Variable Life Insurance:
With a variable life insurance policy, you can choose which mutual funds to invest in. Although the price of those funds can rise or fall over time, returns are not guaranteed. Therefore, you could end up losing money as a result of investing.
Universal Life Insurance:
A universal life insurance policy may be able to provide more flexible premiums. However, because the amount of interest credit applied to your account may fluctuate over time, estimating how much cash value you will accumulate is not as straightforward.
The performance of some universal life insurance policies may be indexed, which means that their performance will be designed to track or mimic the performance of a stock market index.
Term Life Insurance:
Term life insurance is not an asset because you will never receive a payout. You can purchase term life insurance for a specific period of time (typically ten to thirty years), and the policy will pay a death benefit to the named beneficiary if you die while the policy is in force. Even if your insurance policy pays out, the funds are only available to your beneficiary (not you).
So, aside from term life insurance, other forms of life insurance policies are considered an asset.
It all comes down to your personal situation and what you want and need from a life insurance policy in the first place. Because the value of a permanent policy that accrues cash value may increase over time, it may be considered an asset in some situations.
Cash-value life insurance can also be a liquid asset if you need to borrow or withdraw from it.
