What Is an Asset?

Susan Kelly

Jan 11, 2024

An asset is something you control or own, and typically, assets have something of value that you have access to. As an example, you may own money in a savings account or real estate property, or even an automobile. They could earn you money or be useful objects.

Assets play a crucial aspect in your finances. Assets can be used to fund your goals as well as provide emergency cash when needed. They can also be stored for worth, allowing you to sell your assets later for cash. Sometimes assets generate revenue or appreciate by value. This could increase the value of your net assets.

Does Your Policy Build Cash Value?

To determine if your insurance counts as an asset, determine whether the policy has a cash value. Only policies that have cash value, also known to be permanent, will most likely be considered assets. To build up cash value, you have to pay into your policy in a way that is greater than the price of the insurance in its entirety. The extra amount is incorporated into the value of your cash, and you could utilize that cash value later.

The term insurance policy (which doesn't have any worth in cash) is also valuable as they offer crucial life insurance security. However, since term insurance policies don't have the cash value you can access, they aren't considered assets.

Which Types of Life Insurance Build Cash Value?

In addition to offering several death benefits in cash, the cash value of life insurance policies with a permanent term can be available through a policy loan or withdrawal.

Whole life

Premiums on life insurance policies usually are not subject to change over time. The death benefit and cash values can be assured at the time of issue, making these policies fairly reliable.

Universal life

Premiums can be adjusted with universal policies that can be useful when your budget fluctuates. The value of cash is contingent on the amount of interest that the insurance company adds to your account. You do not know ahead of time what you'll make.

Variable life

You may invest in the securities (mutual fund) to place the cash value in a variable insurance policy. Since values fluctuate continuously based on the results of investments, it's an asset that is difficult to determine its value.

Cash value insurance offers various tax benefits that could prove beneficial throughout your life. The cash value is tax-free, and it is possible to take funds or draw money from the policy without incurring tax liabilities.

Why It Matters Whether Your Life Insurance Is an Asset

Assets offer various options; however, they require extra attention when it comes to certain circumstances. Here are some examples.

Divorce or Bankruptcy

Any circumstance where you need to appraise your assets objectively will require an account for all permanently-issued life insurance policies. For instance, divorce agreements could require that the parties split assets and the value in cash of an insurance policy, which may be included.

Collateral for a Loan

It is also possible to make use of your life insurance to secure collateral for loans in certain situations, making it simpler to obtain approval. This is known as a collateral assignment. If you die before you pay the loan off, the lender will receive the balance of the death benefit, and your beneficiaries receiving the balance.

You May Be Able To Sell Your Policy

A life insurance policy could be a great way to in the payment of long-term health care costs and other costs as well. Getting life insurance and a "viatical" settlement is also possible. These types of plans are usually offered to those who are older or have a shorter lifetime. In any case, the company buys your insurance policy in a predetermined amount you can use for any purpose or to pay for long-term care costs.

However, your heirs could suffer from this type of arrangement. You'll receive less money as well as the possibility of spending all that cash on care for your dying. This could be a good trade-off, but you need to realize the fact that you're forfeiting the death benefit.

Early Access to Death Benefit

If your insurance policy has an enhanced death benefit that is accelerated, you may be able to get money from the policy, which can be used as an advance in cash before your death, which you can use towards long-term care or even end-of-life treatment. But, any money you receive will be deducted from the death benefit. You may also transfer money from an insurance policy for life into an asset-based policy to purchase long-term care insurance.

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