Is Life Insurance An Asset: A Comprehensive Guide

Picture a financial strategy where safeguarding and earning meet head-on. Sounds like a dream come true, doesn’t it? Well, get ready for a revelation because life insurance could be the game-changer you’ve been searching for.

But before you dive into a world of possibilities, let’s face the tough questions: Is life insurance a magic wand, or are there concealed expenses waiting to emerge? Join the journey as we demystify the age-old question – ‘Is life insurance an asset?’ – and unveil whether it’s a hidden gem in your financial horizon, just waiting to be discovered.

An image of  Life Insurance Asset
Sounds like a dream come true, doesn’t it? Well, get ready for a revelation because life insurance could be the game-changer, photo courtesy: Life insurance agencies Instagram source

Advantages Of Using Life Insurance As An Asset

  1. Diversification and Portfolio Growth:
    • Introduce a distinctive asset class to your portfolio, reducing reliance on traditional investments like stocks and bonds.
    • Watch the cash value in permanent policies grow tax-deferred, potentially outpacing inflation and contributing to overall wealth building.
  2. Liquidity and Access to Funds:
    • Access your cash value through policy loans or withdrawals, serving as a crucial source of emergency funds or liquidity for investments.
    • Enjoy the perk of low-interest loans, creating a financial safety net without significant burdens.
  3. Collateral and Estate Planning:
    • Leverage permanent life insurance policies as collateral for loans, potentially securing favorable rates or unlocking credit opportunities.
    • The death benefit, not classified as an asset, ensures financial security for your loved ones and streamlines estate planning.
  4. Tax Advantages:
    • Explore potential tax deductions for premiums paid on permanent life insurance, depending on your tax situation.
    • Benefit from tax-free cash value growth and death benefits, under specific conditions, providing an edge over taxable investments.
  5. Additional Benefits:
    • Discover added layers of protection with riders like long-term care or disability income, fortifying your defense against future risks.
    • Experience peace of mind, knowing your loved ones will find financial security in the event of your passing.

Disadvantages Of Using Life Insurance As An Asset

  1. Higher Cost:
    • Permanent life insurance, with its cash value component, often entails significantly higher premiums compared to the more straightforward term life policies.
    • Additional policy fees and surrender charges can eat into cash value growth, potentially reducing the overall return on investment.
  2. Lower Growth Potential:
    • While cash value in life insurance policies grows tax-deferred, the accumulation rate tends to be lower than traditional investments like stocks or real estate.
    • The long-term returns may not always outshine other available investment options.
  3. Reduced Liquidity:
    • Accessing cash value through loans or withdrawals may incur interest charges and trigger potential tax implications.
    • Premature withdrawals or surrendering the policy can lead to substantial financial losses, offsetting the intended benefits.
  4. Complex Product:
    • The intricate terms, fees, and nuances of permanent life insurance can pose a challenge for those unfamiliar with the complexities.
    • Choosing the right policy with favorable terms and riders demands careful research and potentially the guidance of a qualified financial advisor.
  5. Misaligned Goals:
    • Treating life insurance primarily as an investment may not maximize its efficiency as a financial product.
    • An exclusive focus on cash value growth may overshadow the primary purpose of life insurance, which is to offer financial protection for loved ones in the event of your passing.

Policy Fees And Charges

1. Premium Load/Sales Charges:

  • These charges, typically deducted from the first few years’ premiums, compensate agents or brokers for selling the policy.
  • The percentage can vary but generally ranges from 3% to 8% of the premium.

2. Mortality and Expense Risk Charge (MER):

  • This covers the insurance company’s costs associated with providing insurance protection and managing the policy.
  • It’s usually deducted monthly from the cash value and calculated based on factors like your age, gender, and health.

3. Administration Fee:

  • This covers the ongoing administrative costs of maintaining your policy, such as recordkeeping and account management.
  • It’s often a flat fee charged annually or monthly.

4. Policy Maintenance Fee:

  • This fee might apply to cover costs associated with additional services or riders attached to your policy, like long-term care or disability income riders.
  • Its amount and structure can vary depending on the specific rider.

5. Surrender Charge:

  • This penalty applies if you withdraw or surrender your policy before the surrender charge period ends (typically 5-10 years).
  • Its purpose is to discourage early withdrawals and protect the insurance company’s financial stability.
  • The charge usually decreases over the surrender period, eventually reaching zero.

Surrender Charges

Ever wondered about those surrender charges in your life insurance policy? Let’s break it down in human terms.

What Are They?

Surrender charges are penalties slapped on by the insurance company if you decide to surrender your policy or withdraw a chunk of cash value before a set period ends—usually 5-10 years. Why? Two big reasons:

  1. Protecting the Money Pool:
  2. Long-Term Commitment:
    • Surrender charges act like a commitment nudge. They encourage you to stick around for the long haul, preventing using the policy as a quick savings fix.

How Are They Cooked Up?

The recipe for calculating surrender charges varies, but here are the common flavors:

  1. Percentage of Death Benefit:
    • Picture a penalty as a slice of your death benefit, and the size depends on when you make your move.
  2. Graded Schedule:
    • It starts high in the early years, like a rollercoaster, but gradually chills out until it hits zero at the end of the surrender period.

Impact on Your Money Game:

Expect some dance with your dollars. Surrender charges can shake up the net cash value, especially if you’re tapping into funds early. When you’re crunching the numbers on using life insurance as an asset, don’t forget to factor in these charges.

Before You Decide:

  1. Play Detective:
    • Dive into your policy document and scrutinize that surrender charge schedule. Know the percentages and how they shrink over time.
  2. Compare & Contrast:
    • Before you sign up, compare surrender charge schedules across different policies. If you’re not sure about the long haul, aim for lower charges.

Loans vs. withdrawals

Life Insurance Loans:


  1. Tax-Free Repayments:
    • Enjoy the perk of tax-free loan repayments, unlike withdrawals, adding an extra layer of financial appeal.
  2. No Credit Checks:
    • Say goodbye to credit check hassles! Borrowing against your policy is a breeze, offering straightforward access to funds.
  3. Lower Interest Rates:
    • Dive into the world of lower interest rates. Compared to personal loans or credit cards, policy loans often come with friendlier rates, potentially saving you money.
  4. Active Policy:
    • Keep the dream alive! Your policy stays active even with an outstanding loan, ensuring your loved ones remain covered.


  1. Accumulating Debt:
    • Brace for impact—interest accrues on the loan, nibbling away at your cash value and diminishing the eventual death benefit for your beneficiaries.
  2. Lapse Risk:
    • It’s a tightrope walk! Unpaid loan interest might lead to policy lapses if your cash value dips, leaving you vulnerable and in debt.
  3. Death Benefit Reduction:
    • What you owe takes a toll. The outstanding loan amount is subtracted from the death benefit paid to your beneficiaries.



  1. Instant Cash Access:
    • Need cash pronto? Withdrawals offer direct access, providing immediate liquidity for emergencies or planned expenses.
  2. No Repayment Obligation:
    • Embrace freedom! Unlike loans, withdrawals don’t demand repayment, giving you flexibility in managing your funds.
  3. Interest-Free Zone:
    • Skip the interesting drama. Withdrawals spare you the burden of accruing interest on the withdrawn amount.


  1. Tax Considerations:
    • Watch out for the tax man! Depending on the amount and policy type, a portion of your withdrawal may face taxation as income.
  2. Death Benefit Dips:
    • There’s a trade-off. Similar to loans, the death benefit takes a hit, decreasing by the amount withdrawn.
  3. Surrender Risk:
    • Proceed with caution. Excessive withdrawals can lead to policy lapses, leaving you without coverage and potentially facing tax penalties.

Cash Value Accumulation Rate

What Is It?

The cash value accumulation rate is like the heartbeat of your policy—it measures the annual percentage growth of the cash value tucked inside. Now, this rate isn’t pulled out of thin air; it dances to the tune of a few key factors:

  1. Policy Type Dance:
    • Whole-life policies bring a bit more swagger with higher guaranteed minimum rates. On the flip side, universal life policies are the freestylers, offering flexibility but potentially lower minimum rates.
  2. Investment Performance Groove:
    • Picture this as your policy’s cool playlist. Some universal life policies groove to the beats of specific investments chosen by you, the policyholder.
  3. Interest Credits Rhythm:
    • The insurance company plays DJ, dropping periodic interest credits into the cash value mix based on their investment returns and secret formulas.
  4. Mortality Charges Moves:

Factors Shaping the Rate:

  1. Age Spotlight:
    • Age adds its flair. Rates often shimmy upward as you age, reflecting the lower risk of the insurance company shelling out a death benefit.
  2. Duration Dance:
  3. Economic Beat:
    • Cue the economic soundtrack. Interest rates and investment performance can sway the overall cash value accumulation rate.

Financial advisor consultations

1. Holistic Financial Review:

  • Dive into the depths of your financial ocean. Explore your income, expenses, debts, goals, and risk tolerance. It’s the canvas on which your personalized plan will be painted.

2. Asset Evaluation:

  • Let’s take stock of what’s in your treasure chest. Evaluate your existing assets and investments—every piece of the puzzle counts.

3. Life Insurance Deep Dive:

Understanding Life Insurance as an Asset:

  • It’s time for a life insurance crash course. Term or permanent—know the differences. Delve into the specifics of your policy—cash value growth, fees, charges, and surrender options. Let’s figure out if it’s the asset fit for your unique needs.

Developing Your Winning Strategy:

  • We’re architects of financial success. Discover the optimal way to turn your life insurance into a wealth-building tool. Loans, withdrawals, or a blend of both—let’s find the sweet spot. Craft a plan that balances the shield of death benefit protection with the dance of cash value growth. If diversification is the key, we’ll explore alternative investment options.

Addressing Your Worries:

  • Let’s talk taxes—understand the implications of loans, withdrawals, and those pesky surrender charges. We’re not ignoring the elephants in the room—discuss the risks and drawbacks of using life insurance as an asset. Your risk tolerance and long-term goals will guide the ship.


Is life insurance an asset?

  •  It depends on the type of policy. Term life insurance policies are not considered assets because they only provide a death benefit. However, permanent life insurance policies such as whole life, universal, variable, and indexed universal policies are considered assets because they accumulate cash value over time.

What is cash value?

What are the benefits of using life insurance as an asset?

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