An asset is something you invest in with the hope of receiving a return on your investment. Most people have tangible assets, like a home and other valuable items, and liquid assets, including retirement and savings accounts, which you hope gain value over time.
Whether a life insurance policy is an asset depends on whether you 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 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 will never collect a future payout. A term life insurance policy lasts for a set period of time (usually 10-30 years) and pays a death benefit to your beneficiary if you die while your policy is active. Even if the policy does pay out, only your beneficiary benefits from the funds (not you).
In rare cases, proceeds from a term policy might become an asset if:
You sell the policy for a profit. Any earnings count toward your liquid financial assets and are subject to income tax.
Your assets total $11.7 million or more. Your beneficiary may need to pay an estate or gift tax on the total assets they inherit.
You should buy a term policy in addition to your assets because most assets take decades to appreciate their full value. If you die before your investments have matured, the death benefit of your life insurance policy will provide additional financial support to your dependents.
→ Calculate how much coverage you need while your investments grow
Is whole life insurance an asset?
Unlike term life insurance, whole life insurance and other forms of cash value life insurance like 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 component, called the cash value of the policy. (The exact amount depends on your individual policy.)
Because the policy's cash value grows over time and you can withdraw from those funds like an investment, it 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 may qualify as an asset, for most people, a whole life policy isn’t a good investment.
Cash value policies come with limited investment options, high fees, and relatively low rates of return. Over the long run, dedicated investment vehicles—such as a mutual fund, 401(k), or IRA—will likely provide better returns than a whole life policy. Whole life insurance is also five to 15 times more expensive than comparable term life policies.
“In the vast majority of cases, an investor is better off purchasing term life insurance to receive the benefits of a life insurance policy,” says Levi Sanchez, a financial planner and founder of Millennial Wealth, LLC. “The investor could instead invest the difference between the fees associated with permanent life insurance and term insurance and end up better off. Other tax-advantaged accounts could all be maxed out prior to even considering the 'tax-efficiency' of a permanent life insurance policy.”
→ Learn more about why life insurance isn't the best investment
Is life insurance considered an asset in a divorce?
Term life insurance won’t be considered an asset in a divorce because it lacks a cash value component. However, a whole life policy or any other form of cash value life insurance is an asset in divorce proceedings.
That means that you need to list any cash value policy 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.
The easiest way to identify whether your life insurance policy is an asset is to consider whether you stand to 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. If you’re unsure, a licensed financial advisor can clarify the particulars of your situation.
Frequently asked questions
What is an asset?
Your assets are anything you own that could potentially increase in value and become profitable. That includes personal property, like a house, as well as investments and savings.
When is life insurance considered an asset?
Term life insurance is not an asset because the death benefit only pays out after you die. A permanent policy with a cash value is an asset because the cash value earns interest and you can withdraw from it while you’re alive.
Is life insurance part of my net worth?
The cash value of a permanent policy is part of your net worth. While you’re alive, term life insurance is not part of your net worth. After you die, the proceeds become part of your estate for tax purposes.
What type of asset is cash value life insurance?
Cash value life insurance is considered a liquid asset because you can withdraw funds from your policy while you’re alive.