How to Use Life Insurance as an Asset
A life insurance policy can protect your loved ones financially after you’re gone. But it can also be helpful during your lifetime as an asset. Depending on the policy type, you can access the cash value to withdraw funds, get the cash surrender value or borrow a loan against it. We’ll explore how you can use life insurance to build wealth, what the pros and cons are and when you should avoid counting your policy as an asset.
Quick links
- Is Life Insurance Considered an Asset?
- Types of Life Insurance That Count as Assets
- Life Insurance in Your Estate Plan
- How to Use Life Insurance as a Wealth-Building Asset
- Pros and Cons of Treating Life Insurance as an Asset
- When Life Insurance Should NOT Be Treated as an Asset
- FAQs on Life Insurance as an Asset
Key Takeaways
Life insurance is designed primarily for protection, but If you own a permanent life insurance policy, it builds cash value that can be a financial asset in later years.
Cash value grows tax-deferred, and can be accessed via withdrawals or loans.
Using life insurance as an asset is possible, but accessing your cash value may reduce the death benefit and lead to tax exposure in some cases.
Term life insurance policies do not include a cash value component, so they are not typically counted as an asset you can use while living.
Is Life Insurance Considered an Asset?
Life insurance is designed to help your loved ones financially after you pass away. Your life insurance policy can only be considered as an ‘asset’ if you can use it during your lifetime, so only the cash value should be referred to as an asset. The death benefit paid to your family after you pass away should not be considered an asset while you’re alive.
That’s why only a permanent life insurance policy can be considered as an asset, and not a term life policy. Term policies are designed purely for protection, so they don't include a cash value component.
Cash value within your permanent life insurance policy can be accessed while you’re living as a present-day financial resource. Here’s how cash value on your life insurance makes it an asset:
How Cash Value Builds
If you have permanent life insurance coverage, like a whole life or universal life policy, those policies accumulate cash value that can grow over time. Here’s how cash value builds:
- When you pay premiums, a part of it is used for maintaining the cost of coverage, while the rest goes for the cash value growth.
- As you keep paying the premiums, your cash value can grow over the years through guaranteed interest, market-linked crediting or investment-like subaccounts, depending on the policy type.
- The cash value growth is tax-deferred, meaning you don’t pay taxes on the accumulating funds.
- It works somewhat like a savings account from which you can withdraw funds or borrow from if needed. Policy loans are also charged interest.
- Accessing the cash value can reduce the death benefit for your beneficiaries or even cause the policy to lapse, if you take out too much and it’s not repaid.
Ways to Access Cash Value
Once substantial cash value has accumulated in your policy, you can access it in multiple ways, including withdrawing funds or taking out a loan. If you access your cash value, you should ensure there are enough funds in the policy to keep the coverage active. You may also surrender your policy to get the cash surrender value, but in that case coverage would end.
- Withdraw from the Cash Value: On accumulating enough cash value on the policy, you can withdraw a part of it to repay loans, fund education expenses or supplement retirement income. But remember, withdrawing funds can also reduce the death benefit for the beneficiaries and may sometimes trigger taxes.
- Take Out A Policy Loan: Rather than withdrawing the cash value outright, you can borrow from it. Unlike traditional loans, you often get these loans without a detailed credit check. However, policy loans do include interest. If at any point your outstanding loan balance goes over the policy’s cash value, your policy may lapse. Plus, unpaid balance and due interest can also reduce the overall death benefit for the beneficiaries.
- Surrender the Policy: You can surrender the policy, which means to cancel the policy before maturity and take the cash surrender value (cash value minus surrender charges). This option may offer you an instant payout, but your coverage may immediately end, so it is suitable only if you no longer need the protection. If the cash surrender value you receive is higher than the total premium you’ve paid, you may have to pay taxes.
Tax Treatment of Cash Value Growth
Typically, the cash value on your life insurance policy grows tax-deferred, meaning you don't pay any taxes on the accumulated value. But taxes may apply in the following cases:
- If you use the cash value to withdraw funds, and the withdrawal amount is higher than the total premiums you’ve paid over the years, then the excess amount is taxable (not the whole withdrawal amount).
- If you surrender the policy and the cash surrender value that you receive is higher than the total premiums paid, the excess amount is taxable (not the whole cash surrender value).
- Policy loans are often not taxable, but if your policy lapses, the outstanding amount can be treated as income. Here, taxes can imply any value above the total premiums you’ve paid.
If the withdrawal amount or cash surrender value is lower than the total premiums you’ve paid, you typically won’t have a tax liability.
Read: Is Life Insurance Part of an Estate
Types of Life Insurance That Count as Assets
Not only life insurance policies can function as a financial asset. Only permanent life policies count as assets, and only if they have accumulated cash value.. Here are some types:
- Whole life insurance: Accumulates cash value at a fixed rate with stable premiums. If it’s a participating whole life policy, it may also offer dividends if the company performs well.
- Fixed/Traditional Universal life insurance: This policy offers flexible premiums that can be adjusted. The cash value earns interest at a declared rate set by the insurance company.
- Indexed universal life (IUL): Cash value growth is tied, in part, to a market index, typically with floors and caps.
- Variable life insurance: In this policy type, cash value is invested directly in market subaccounts that come with investment risks, including the potential for loss of principal.
The cash value on all these policies is accessible and offers liquidity. Thus, these policy types count as an asset.
Read: How Do Life Insurance Policies Work?
Life Insurance in Your Estate Plan
Your life insurance policy acts as both protection and a financial asset. But it can also become a part of your estate plan.
When you consider your policy as an asset, it makes sense not only during your lifetime but sometimes also after you pass away. It’s important that the policy’s worth is available for your dependents in the right way. You might consider structuring ownership and beneficiaries in a way that supports your current needs and future goals for your family without unnecessarily increasing your taxable estate. Here’s what you should know about how policy ownership affects estate inclusion:
When Cash Value Counts Towards Net Worth
The cash value on your life insurance policy is accessible as an asset, as it allows withdrawals and loans during the lifetime. Thus, it can add to your total net worth. That’s why it may be treated as marital property during divorce settlements, especially when it is a joint policy or you need to provide alimony or financial support.
When the Death Benefit Can Trigger Estate Tax
Usually, only the policy’s cash value is treated as an asset, not the death benefit. But the death benefit may add to your taxable estate after your death. This usually happens when you’ve not transferred the policy’s ownership during your lifetime or when the estate is the beneficiary. In such cases the death benefit payout is added to the total estate value. If this value goes over the federal estate-tax limit, the excess value is taxable.
Expert Tip
My policy has cash value, but I’m not sure what that means for my finances. Does that make my life insurance an asset, and how can I actually use it?
If your life insurance policy includes a cash value component, you might consider it an asset. You can withdraw or borrow from the cash value to cover expenses around a child's education, debt repayment, or to help supplement retirement income. You can also use the policy’s cash value to fund major expenses like a wedding or home improvements. But remember, using the cash value can impact the available death benefit for the beneficiaries. Using cash value may also create tax consequences depending on policy funding and withdrawals.
Senior Director Life Underwriting
How to Use Life Insurance as a Wealth-Building Asset
Your life insurance policy’s cash value can be a strategic asset that you may use to strengthen your overall financial plans. Here are some ways in which cash value can help you build a diverse assets profile:
- Funds in the cash value can be used for down payments often needed for the purchase of real estate.
- You can also consolidate your ongoing debts with cash value and reduce your liabilities.
- Market-linked cash value growth can offer growth potential depending on policy features and market conditions.
- Accumulated cash value can act as an emergency fund while you use your income and other liquid funds for fulfilling major expenses or purchasing other assets.
- Withdrawals or loans may reduce the death benefit and may create tax consequences.
Life insurance can be a smart wealth-transfer tool, as it pays a death benefit to your beneficiaries that is generally tax-free. This allows you to transfer wealth without liquidating other assets. To accelerate the growth of your cash value and build long-term wealth, you may consider overfunding.
Overfunding means paying more than the minimum required premium so more of your payment goes toward the policy’s cash value. Doing this can help you build accessible cash value more quickly, which may increase your ability to borrow or use the funds for future financial needs. Just keep in mind that exceeding IRS limits can cause the policy to become a Modified Endowment Contract (MEC), which changes how loans and withdrawals are taxed.
Read: How Long is Term Life Insurance
Pros and Cons of Treating Life Insurance as an Asset
| Advantages | Disadvantages |
|---|---|
You can withdraw funds from the cash value while keeping the policy active. | Withdrawing funds can reduce the death benefit for the beneficiaries |
Policy loans often require no paperwork or credit check. | Cash value may take several years to build |
Offers long-term protection with cash value liquidity. | Asset building is only possible with permanent policies, which are generally more expensive than term policies. |
Funds in the cash value can be used to supplement retirement income. | Surrendering a life insurance policy immediately ends the coverage; surrender charges may apply. |
When Life Insurance Should NOT Be Treated as an Asset
Counting your life insurance policy as an asset may be smart for your long-term financial planning, but not always. You should not consider your life insurance as an asset when:
- You own a term life policy, as it doesn’t include a cash value.
- Your policy has just started, and there’s not enough cash value.
- You need a higher loan amount than the policy’s cash value.
- Your policy is underfunded and may lapse.
FAQs on Life Insurance as an Asset
If you own a permanent life insurance policy and it includes a substantial cash value, it can be considered an asset. The funds in your cash value can be helpful during your lifetime to cover major expenses such as a child’s education, debt repayment or to supplement retirement income.
You can withdraw or borrow from the cash value, or surrender the policy and receive the cash surrender value. Withdrawing or borrowing can reduce the death benefit for the beneficiaries, and surrendering leads to an end in coverage.
Only permanent life insurance policies can be counted as financial assets, as they include cash value. Once enough cash value has accumulated within your policy, you can withdraw or borrow from it.
No, term life insurance policies are not considered a financial asset. They are essentially designed for protection only and don’t include a cash value component.
Cash value in your life insurance policy can count towards your net worth, as the funds are accessible during your lifetime. This may apply in case of divorce proceedings. If it’s a joint policy or you need to provide alimony or financial support, cash value may be counted as part of marital property.
Permanent life insurance can help support long-term planning because the cash value grows over time and can be accessed for financial needs later in life. You can use it to supplement retirement income, cover unexpected expenses, or help with debt repayment.
Some people also choose to overfund their policy to build cash value more quickly, but going over IRS limits can turn the policy into a Modified Endowment Contract (MEC), which changes how loans and withdrawals are taxed.
Author
Chief Underwriter
Expert review
Chief Compliance & Privacy Officer
Dec 11, 2025
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