A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Car Insurance Agent

UPDATED: Feb 15, 2017

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Don't miss these facts...

  • A life insurance policy can be considered an asset, depending on a variety of factors.
  • In most cases, term life insurance will not be counted as an asset.
  • In most cases, a whole life or universal life insurance policy that has accumulated substantial cash value will count as an asset.
  • But, it’s complicated and depends a great deal on who is asking and why they are asking. You may need to do some research or speak with a professional to determine the exact answer relevant to your concerns.

Although it can be a bit of a head trip to think of life insurance as an asset class, it absolutely can be an asset at times. Generally speaking, this will be true most often for policies that accrue a cash value, such as whole life.

Also, generally speaking, it will usually not be true for term life policies, though there can be exceptions in some fairly unusual situations that do not come up all that often.

Sometimes, this classification of life insurance as an asset is unequivocally a good thing, such as when you are applying for a mortgage.

At other times, it can be a good bit more complicated, such as when you are looking to apply to Medicaid for purposes of long-term care coverage.

Learn more about life insurance as an asset below and make sure to compare life insurance rates above with our free quote tool!

Term Versus Whole Life

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A term life insurance policy is one purchased for a set amount of time. If the insured individual outlives the policy term, it expires and pays nothing.

So, generally speaking, it is only worth something if the insured dies during a specified period of time.

For this reason, a term policy is usually not considered an asset. However, there are a few exceptions. For instance, sometimes, a term policy is convertible.

Also, once in a great while, if the insured is diagnosed with a terminal illness, it may be possible to sell the policy.

In contrast, whole or universal life typically is counted as an asset by various financial institutions or government entities. The reason is that it accrues cash value while you are still alive.

This cash value can be borrowed against pretty much at will by the owner of the policy. The borrowed money can be spent on anything. There are no real conditions on its use.

The cash value of certain types of life insurance policies is an unusual financial instrument with many pros and cons.

For many middle-class Americans, if you can afford the premiums on a whole life policy, it makes sense to go for it because of the unique positioning of the cash value in respect to various things.

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Food Stamps

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Although no one really wants to consider the possibility that they will end up in real financial trouble, it is worth stopping and considering a worst case scenario. What happens if you do face a situation where food security is a serious concern?

Qualifying for food stamps depends on both your current income and your “resources” or assets. A term life insurance policy should not impact your ability to qualify for food stamps if you are in serious financial trouble for some reason.

A whole life policy with accrued cash value can be counted as an asset that disqualifies you.

The rules are complicated, and they have a lot of exceptions. Especially if you are elderly, you should not hesitate to look into it if you find yourself in financial trouble of the sort that threatens your food security.

People over a certain age are allowed to have more assets, yet still qualify. Blindness or disability can also be factors that change the way your assets are measured for purposes of determining eligibility for food stamps.

Medicaid

Although many people think of Medicaid as being for poor people, the reality is that it is the de facto long-term care coverage solution for most middle-class Americans.

If you aren’t wealthy, and you don’t die relatively young and suddenly, such as in a car accident, the odds are good that you will eventually need to apply for Medicaid.

The rules for Medicaid are complicated and they provide for a five-year “Look Back Period” to make sure you aren’t trying to cheat the system.

So, whatever your age, it would be wise to start familiarizing yourself with some of the basic points concerning qualifying for Medicaid coverage.

Generally speaking, a term life insurance policy will not count as an asset for purposes of determining your eligibility for Medicaid. You are allowed one small whole life policy with a low cash value.

If you have more than that, you will need to investigate how it can be legally used during the spend-down period. Savvy use can help put more money into your pocket without breaking any rules.

But that is a whole topic in its own right. Suffice it to say that if you are a middle-class American dealing with substantial health costs for a chronic condition, Medicaid is a topic you need to start reading about regularly.

You need to educate yourself because a lot of money is at stake. Mishandling financial decisions that can sound pretty arcane can cost you a fortune in lost Medicaid benefits.

To further complicate matters, Medicaid is a state-run, federal program. Its joint nature of the program means that the rules can vary substantially from one state to the next.

They can also change at any time, due to changes at either the state or federal level.

Student Financial Aid

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Generally speaking, life insurance is not counted at all for purposes of determining eligibility for student financial aid. For this reason, cash value amounts associated with whole life policies are frequently used by middle-class families to help cover college costs.

It is something of a legal loophole. In almost all other cases besides student financial aid, whole life policies with accumulated cash value do get counted as assets.

This is a little-known detail that is good to know.

If you have college aspirations for your kids, or even for yourself, whole life insurance can be a means to squirrel away money that will not undermine the pursuit of financial aid packages.

In this day and age of rising college costs and crippling student loans, a whole life policy can practically be a secret weapon.

This can be one way to help a family navigate the dangerous financial waters of a college education. If college is on your bucket list, this is definitely something you should learn more about.

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Mortgage Lenders

Unlike other insurance products, life insurance absolutely can be counted as an asset. As noted above, whole life is usually counted as an asset and term life usually is not.

Mortgage lenders do typically count whole life policies as one of your assets when considering whether or not to lend you money for a house.

Unlike with food stamps, Medicaid benefits or student financial aid, this is a situation where having more assets is a good thing.

You want to be able to show that you have what it takes to pay your bills, and will be able to do so successfully even if something goes wrong and you fall on hard times for some reason.

It’s Complicated

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There are so many different life insurance products, and there are so many unusual personal factors that can come into play, that there simply is no nice, simple answer for this question.

Answering the question as to whether or not a life insurance policy is an asset depends on many details. Some of those are:

  • What type of policy do you have? Term or whole life?
  • Why are you asking?
  • Do you have any of a number of unusual situations that can cause this answer to flip flop from the normal answer for your situation?

No one can really give you a quick yes or no to this question. Anyone who tries to is probably not a good source of reliable information.

You can work on answering this question by pulling out your policy to see what kind of policy you have. Then do an internet search related to the relevant financial program.