Is life insurance considered an asset?

Life insurance is a necessity for most people, but only some types are classified as an asset.

Headshot of Tory Crowley
Headshot of Rebecca Shoenthal

By

Tory CrowleyAssociate Editor & Licensed Life Insurance AgentTory Crowley is an associate life insurance and annuities editor and a licensed insurance agent at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.&Rebecca ShoenthalEditor & Licensed Life Insurance ExpertRebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

Edited by

Antonio Ruiz-CamachoAntonio Ruiz-CamachoAssociate Content DirectorAntonio is a former associate content director who helped lead our life insurance and annuities editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.
|

Reviewed by

Kristi Sullivan, CFP®Kristi Sullivan, CFP®Certified Financial PlannerKristi Sullivan, CFP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, she was a regional consultant at Fidelity Investments for nine years.

Updated|3 min read

Expert reviewedExpert reviewedThis article has been reviewed by a member of ourFinancial Review Council to ensure all sources, statistics, and claims meet the highest standard for accurate and unbiased advice.Learn more about oureditorial review process.

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our editorial standards and how we make money.

Only some types of life insurance are considered an asset — something you own that has economic value and is expected to provide a future financial benefit. People often have both tangible assets — for example, a home and other valuable items — and liquid assets, including retirement and savings accounts, which will hopefully gain value over time.

Whether a life insurance policy is an asset depends on whether you can 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 permanent 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 can’t get value from it when you’re alive.

A term life insurance policy is a form of protection that lasts for a set period of time (usually 10 to 30 years) and pays a death benefit to your beneficiary if you die while your policy is active. If you live longer than the policy lasts, you won’t receive any money.

In rare cases, proceeds from a term life policy might become an asset if:

  • You sell the policy for a profit. Any earnings from the sale of a life insurance policy count as an asset and are subject to income tax.

  • Your assets total $13.61 million or more. Your beneficiary may need to pay an estate or gift tax on the total assets they inherit. (Note that $13.61 million is the current estate tax threshold; it can change annually.) [1]

While not an asset, term life insurance is a useful tool to protect your assets and ensure that your family doesn’t suffer financially if you die. 

Calculate how much coverage you need

Ready to shop for life insurance?

Is whole life insurance an asset?

Unlike term life insurance, whole life insurance and other forms of cash value life insurance such as 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 account, called the cash value of the policy. (The exact amount depends on the terms of your individual policy.)

Because the policy’s cash value earns interest over time and you can withdraw from those funds, the amount 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 usually grows over time, for most people, a whole life policy isn’t the best investment.

Cash value policies come with limited investment options, high fees, and relatively low rates of return. Over the long run, dedicated investment vehicles — like a mutual fund, 401(k) or IRA — will likely provide better returns than a whole life policy. Whole life insurance is also significantly more expensive than comparable term life policies.

Why is term life insurance a better investment tool?

“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.”

If you’re already maximizing contributions to tax-advantaged accounts and looking for another way to supplement your investments, it might make sense to add a permanent life insurance policy to your financial plan. Speaking with a financial advisor can help you determine if a cash value policy is right for you.

Learn more about why life insurance isn’t the best investment

Ready to shop for life insurance?

Is life insurance considered an asset in a divorce?

The easiest way to identify whether your life insurance policy is an asset is to consider whether you can 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.

Term life insurance won’t be considered an asset in a divorce because it doesn’t have a cash value component. However, a whole life policy, or any other form of cash value life insurance, is an asset in divorce proceedings.

This means that you need to list any cash value policies 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.

If you’re unsure about how to manage your life insurance coverage during a divorce, a licensed financial advisor can clarify the particulars of your situation.

References

dropdown arrow

Policygenius uses external sources, including government data, industry studies, and reputable news organizations to supplement proprietary marketplace data and internal expertise. Learn more about how we use and vet external sources as part of oureditorial standards.

  1. Internal Revenue Service

    . "

    Estate Tax

    ." Accessed January 22, 2024.

Authors

Tory Crowley is an associate life insurance and annuities editor and a licensed insurance agent at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.

Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

Editor

Antonio is a former associate content director who helped lead our life insurance and annuities editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Expert reviewer

Kristi Sullivan, CFP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, she was a regional consultant at Fidelity Investments for nine years.

Questions about this page? Email us at .