Life insurance is a type of policy that provides financial coverage to the policyholder’s heirs. In fact, it’s an essential consideration for anyone who wants to ensure that their loved ones are cared for in the event of their death. However, despite the widespread use of life insurance, many people are uncertain whether they should classify life insurance as a liability or an asset.
Life Insurance as an Asset
Any type of life insurance policy that earns cash value is an asset. Cash value is the amount of money that accumulates within the policy over time, and it can be used to borrowed against or pay premiums. This allows policyholders to access funds in times of need. The tax benefits that life insurance offer is another way that it can be viewed as an asset. For example, the death benefit paid out to the policyholder’s beneficiaries is typically not subject to federal income tax.
Life Insurance as a Liability
Any life insurance policy that doesn’t earn cash value is considered a liability. Term life insurance is a typical example of non-cash value life insurance. This policy lets you make regular payments on your payment, and you’re not guaranteed anything in return. Instead, the insurance company pockets your premiums if you outlive your life insurance policy term.
While some see life insurance as a liability, it can also be viewed as an asset. With cash value, tax benefits, and peace of mind, life insurance can be valuable to any individual’s financial portfolio.
