Yes, life insurance can be an asset. But whether your specific policy qualifies depends on the type of coverage you own and what you are trying to accomplish with it.
Permanent life insurance, like whole life or universal life, builds cash value over time. That cash value belongs to the policy owner and can be borrowed against, withdrawn, surrendered, or sometimes sold. Term life insurance works differently. It usually does not build cash value, but some term policies still carry financial value if they are convertible, assignable, or eligible for a life settlement or viatical settlement.
This question tends to come up when families are dealing with retirement decisions, Medicaid planning, estate planning, rising premiums, or a serious illness. If someone you love owns a life insurance policy and you are trying to figure out what it is actually worth, the answer is rarely as simple as the number on the front of the policy.
When Life Insurance Becomes a Living Asset
Life insurance can function as a living asset when the policy gives its owner access to financial value during their lifetime.
If the policy has cash value, the owner can usually access that money during their lifetime. Whole life and universal life policies are the most common examples. The cash value grows over time, and the policy owner can borrow against it, take partial withdrawals, or surrender the policy for whatever the insurance company will pay out.
Term life insurance usually has no cash value. But that does not always mean the policy is worthless while the insured is alive. Some term policies include conversion rights, which let the owner switch to a permanent policy without a new medical exam. Others may qualify for a sale. If you want a more detailed breakdown of what a policy might actually be worth, start with the value of a life insurance policy rather than just the death benefit on paper.
Life Insurance Policies That May Have Financial Value
Permanent life insurance is most commonly treated as an asset because it can accumulate cash value over time. Term life insurance is usually not classified as a cash asset since it only pays out if the insured person dies during the policy term.
The National Association of Insurance Commissioners (NAIC) groups life insurance into two broad categories: term coverage and cash value coverage. Cash value policies include whole life, universal life, and variable life. These policies give the owner access to money while alive, depending on the contract terms.
Here is how the most common types break down:
Whole life insurance: Builds guaranteed cash value. Commonly treated as a financial asset.
Universal life insurance: Often builds cash value, though costs and performance vary by policy.
Variable life insurance: Cash value is tied to investment performance. Carries market risk.
Term life insurance: Usually no cash value. May still have value if convertible, assignable, or eligible for sale.
Group life insurance: Often employer-provided. May include conversion or portability options.
FEGLI (Federal Employees’ Group Life Insurance): Does not build cash value like whole life, but federal employees and retirees should review assignment, beneficiary, and continuation rules before making changes. You can learn more about selling a FEGLI policy if the coverage is no longer needed.
Whole Life Insurance as a Cash-Value Asset
Whole life insurance is generally considered an asset because it is designed to build guaranteed cash value over the life of the policy.
The policy owner can borrow against that cash value, withdraw part of it, or surrender the policy for whatever the insurance company will pay. The cash surrender value is what the insurer pays out if the owner cancels the policy, minus any fees, outstanding loans, or charges.
There are tradeoffs worth knowing. Taking a loan against the cash value reduces the death benefit until the loan is paid back. Withdrawals can lower the future value of the policy. Surrendering ends the coverage entirely. Before making any of those moves, ask the insurance company for an in-force illustration so you can see what the numbers actually look like today.
The Potential Value of Term Life Insurance
Term life insurance is not usually considered a traditional financial asset because it does not accumulate cash value. It pays a death benefit only if the insured person dies during the policy term, and the coverage may expire if the insured is still living when the term ends. It pays a death benefit only if the insured person dies during the policy term, and if the term ends while the insured is still alive, the coverage may simply expire.
That said, not every term policy is worthless. Some term policies can be converted to permanent coverage without a new medical exam. Some term policies may also qualify for sale through a life settlement or viatical settlement , depending on the policy’s conversion terms, the insured person’s health, and other eligibility requirements.. If the insured has a serious or terminal illness, it is especially important to check conversion rights and sale options before letting a term policy lapse.
How Life Insurance Cash Value Works
Cash value is money that accumulates within certain permanent life insurance policies and can be accessed by the policy owner during their lifetime.
Not every life insurance policy has cash value. Whole life, universal life, and variable life policies typically do. Term life, group life, and FEGLI policies typically do not.
The owner can usually access cash value through a loan, a partial withdrawal, or by surrendering the policy. Each of those options comes with consequences. Loans reduce the death benefit. Withdrawals may affect the policy’s long-term performance. Surrendering the policy ends coverage altogether. If you are weighing those choices, it also helps to determine whether you may be able to sell your life insurance policy for more than the surrender value.
Understanding Cash Surrender Value
Cash surrender value is the amount an insurance company pays when the owner cancels a permanent life insurance policy before the insured person dies.
It is often less than the full cash value because the insurer subtracts surrender charges, outstanding loans, and other fees. It is almost always much less than the death benefit.
For families under financial pressure, surrendering can feel like the easiest option. But it is worth comparing that number against other paths. A policy that qualifies for a viatical settlement or a life settlement may pay significantly more than the surrender value, depending on the policy details and the insured person’s health.
Including Life Insurance in Your Net Worth
A policy’s accessible cash value may be included when calculating net worth, but its death benefit generally is not.
Net worth is what you own minus what you owe. If a policy has cash value that the owner can access today, many financial planners include it as an asset. The death benefit, on the other hand, is a future payout to beneficiaries. It is not money the policy owner can spend right now, so most people leave it out of personal net worth calculations.
For family planning, it can help to track three numbers separately: current cash value, cash surrender value, and death benefit. If you are also thinking about selling the policy, a market review from a life settlement company can show whether the policy might be worth more than the surrender value.
Life Insurance and Medicaid Asset Limits
Medicaid may count a life insurance policy’s cash surrender value when determining financial eligibility.
Many Medicaid eligibility pathways use a $2,000 individual resource limit, but the applicable limit varies by state, program, marital status, and other circumstances. Depending on the program and applicable exemptions, the cash surrender value of a permanent life insurance policy may count toward that limit. Term policies without cash value are generally treated differently because they do not provide an accessible cash resource.
Rules vary by state, by program, and by the specifics of the policy. Some small policies may be excluded. Some states have higher limits. Before surrendering, transferring, borrowing from, or selling a policy as part of Medicaid planning, speak with a qualified elder law attorney or Medicaid planner. A quick decision without professional advice can affect eligibility, trigger penalties, or create unintended tax consequences.
Some families discover that a viatical settlement may be an option that preserves more value than surrendering for Medicaid purposes, but this depends heavily on state rules and the individual situation.
The Role of Life Insurance in Estate Planning
Life insurance can support an estate plan by providing money to beneficiaries, covering debts, and creating liquidity for an otherwise asset-rich estate.
Beneficiary designations matter more than most people realize. Life insurance proceeds generally pass according to the beneficiary form on the policy, not the will. If the estate is listed as the beneficiary, the proceeds may be subject to probate and creditor claims. If a person or a trust is named, the money usually passes outside the estate.
Ownership of the policy also matters. Under IRS rules, life insurance may be included in the taxable estate if the insured person held ownership rights at the time of death. Families with larger estates or complex planning needs should review ownership and beneficiary decisions with an estate planning attorney. For more on this topic as it relates to serious illness, see estate planning for terminal illness.
Ways to Access Life Insurance Value While Living
Depending on the policy, an owner may be able to access its value through loans, withdrawals, accelerated death benefits, surrender, or sale.
Policy loans let the owner borrow against the cash value without surrendering the policy. Partial withdrawals take money out of the cash value directly. Accelerated death benefits, available on some policies, allow the owner to receive a portion of the death benefit early if they have a qualifying illness. Surrendering the policy cancels coverage in exchange for the cash surrender value. Selling the policy through a life settlement or viatical settlement may provide a lump sum that is often higher than the surrender value.
The right choice depends on why the money is needed, how much coverage the family still needs, and what the policy is actually worth on the open market. Our guide on how to use life insurance while alive walks through each of these options in more detail.
Selling a Life Insurance Policy for Cash
Certain life insurance policies can be sold to a third-party buyer in exchange for a lump-sum cash payment.
A life settlement involves selling a life insurance policy through a licensed life settlement provider, subject to applicable state requirements. The seller receives a lump-sum payment and transfers ownership and beneficiary rights. The new owner assumes responsibility for the premiums and eventually receives the death benefit. A viatical settlement works in a similar way but is typically available to individuals with a serious or terminal illness.
American Life Fund reviews term, whole life, universal life, group, and FEGLI policies. A common starting point for eligibility is a policy with a face value of at least $200,000. Other factors include the insured person’s age, health, policy type, and premium costs. If this is something you are considering, learn more about how to sell your life insurance policy before making any final decisions.
Life Settlement vs. Policy Surrender
A life settlement may provide more money than surrendering a policy, although the better option depends on the policy and the owner’s circumstances.
Surrender value is set by the insurance company. It is based on the internal value of the policy minus fees, charges, and any outstanding loans. A life settlement looks at the policy differently. Buyers evaluate the death benefit, the premium costs, the insured person’s health, and the expected duration of the policy. When a policy qualifies, a life settlement offer may exceed its cash surrender value.
That said, keeping the policy may still be the best option if beneficiaries depend on the death benefit, premiums are affordable, or the policy has strong long-term value. If you are not sure which path makes sense, our page on whether to cash out life insurance breaks down the comparison in plain language.
Tax Considerations for Life Insurance Assets
The tax treatment of life insurance depends on the type of policy and how its value is accessed.
The IRS states that life insurance proceeds paid to a beneficiary because of the insured person’s death are generally not included in gross income. However, interest on proceeds and certain transfer situations can be taxable. If you surrender a policy for cash, any amount above your cost basis in the policy may be subject to income tax.
Settlements, accelerated death benefits, policy loans, and withdrawals each carry different tax rules. American Life Fund does not provide tax advice, but we do recommend speaking with a tax professional before making any changes to a policy. For a general overview, see our page on life settlement taxes.
How to Determine Your Life Insurance Policy’s Value
Determining a policy’s value requires looking beyond its death benefit to its cash value, surrender value, premiums, loans, conversion options, and riders.
Start by calling the insurance company and requesting an in-force illustration. This document shows the current state of the policy, including how much cash value has built up and what the surrender value would be today.
If you are considering selling the policy, you also need a market review. A policy’s market value can differ significantly from the surrender value because a buyer evaluates the full picture, not just the cash sitting inside the policy. American Life Fund offers no-obligation reviews for qualifying policies. You can start with our page on the value of a life insurance policy to see what factors go into the calculation.
Steps to Take Before Changing Your Policy
Before making an irreversible policy decision, gather the current values in writing and compare every available option.
Call the insurance company and ask for current policy values. Review who is listed as the beneficiary. Check for outstanding loans. Ask whether a term policy can be converted to permanent coverage. If Medicaid, taxes, estate planning, or a serious illness is involved, talk to the right professional before making a move you cannot undo.
If the policy has a face value of at least $200,000 and you are considering surrendering, lapsing, or selling it, American Life Fund can review whether a life settlement or viatical settlement may be available. There is no cost to find out and no obligation to move forward.
The Bottom Line: Understanding Your Policy’s Value
Life insurance functions as an asset when it holds value that the owner can use, transfer, borrow against, surrender, or sell. Permanent policies fit that definition most clearly because they build cash value. But term, group, and FEGLI policies can still be worth reviewing, especially when the insured person’s health has changed or when premiums are becoming hard to manage.
For families caring for an aging parent, a spouse, or a loved one dealing with a serious illness, the policy may be more than a future death benefit. It may be part of today’s financial picture. The safest next step is always to learn the policy’s real value before letting it lapse, surrendering it for less than it could be worth, or assuming it cannot help.
FAQs: Life Insurance as an Asset
Is life insurance considered an asset?
Yes, it can be. Permanent life insurance with cash value is usually the clearest example. Term life insurance is typically not counted as a cash asset, but it may still carry financial value in certain situations, like if it is convertible or eligible for a life settlement.
Is the death benefit an asset?
The death benefit is generally not an asset you can count in your own net worth while you are alive. It is a future payment to your beneficiaries, made only if the policy is active when the insured person dies.
Is cash value life insurance an asset?
Yes. Cash value is a living value inside permanent policies like whole life and universal life. The policy owner can usually access it through a loan, withdrawal, surrender, or sale.
Is life insurance counted as an asset for Medicaid?
It depends on the state and the policy. Policies with cash surrender value may be counted as resources. Term policies with no cash value are generally treated differently. Rules vary, so families should consult a Medicaid planning professional before making decisions.
Can FEGLI be considered an asset?
FEGLI is term life insurance for federal employees and does not build cash value like whole life. However, it can still be meaningful in estate and financial planning. Federal employees and retirees should review FEGLI assignment, beneficiary, and continuation rules before making changes.
Can I sell my life insurance if I am seriously ill?
Some policy owners with a serious or terminal illness may qualify for a viatical settlement. Eligibility depends on the policy, the health situation, state regulations, and buyer review. American Life Fund can help determine whether a policy qualifies.
Is a life insurance policy considered personal property?
Yes. A life insurance policy is generally treated as a contract owned by the policy owner. The owner may have rights including changing beneficiaries, assigning ownership, borrowing from cash value, surrendering the policy, or selling it if it qualifies.
Can I use life insurance to pay for nursing care?
Depending on the policy, you may be able to use cash value, accelerated death benefits, a policy loan, surrender, or a life settlement or viatical settlement to help cover nursing care costs. Each option has tradeoffs that should be weighed carefully.
Should I let a life insurance policy lapse if I can no longer afford it?
Not before checking the policy’s value. Letting a policy lapse ends coverage with no payment to you or your beneficiaries. Before you let that happen, ask about the surrender value, conversion rights, reduced paid-up options, and whether the policy might qualify for a settlement.
What is the difference between a life settlement and a viatical settlement?
Both involve selling a life insurance policy for a lump sum. A life settlement is typically for seniors who no longer want or need coverage. A viatical settlement is designed for individuals with a serious or terminal illness. Tax treatment and eligibility rules can differ between the two.
