Does life insurance count as an asset? The answer depends on the type of policy, who is asking, and when they ask the question.
There are different coverage types with different resource implications. Private companies and government agencies might ask about your net worth.
They may count resources differently depending upon reason, and timing. Learn when your life insurance counts as an asset.
- Which policy types accumulate assets?
- Who does the counting matters
Life Insurance Policies That Count As Assets
Not every life insurance policy type accumulates cash value that might count as an asset. Those who own a permanent form of coverage will need to understand how to calculate the figures. An accelerated death benefit sometimes becomes an asset.
Cash Value Policies
Whole life and universal life are the most common forms this coverage. The cash value accumulates over time and earns tax-Only cash value life insurance policies will count as an asset in most cases. deferred interest. Policyholders can borrow against the funds. The surrender value is the stated cash value less any outstanding loans and is counted as an asset. Money taken out as a loan is an asset until spent.
Term life insurance does not accumulate cash value and does not count as an asset while the covered person is living. The face amount does not become a resource until after the covered person dies.
The contract expires after payment of the death claim. The lone exception is when the policy has an accelerated death benefits feature, and the owner has a terminal illness.
Accelerated Death Benefit
An accelerated death benefit allows a policyholder to receive an advance of the face amount if diagnosed with a terminal illness and given less than twelve months to live. The payment of the accelerated death benefit reduces the stated face amount and stated cash value.
Owners who take advantage of any accelerated death benefit may increase their level of countable resources. Term life coverage has no cash value. However, when a portion of the face amount is advanced it becomes an asset until spent.
Use of the accelerated death benefit with permanent policies may increase countable assets if the amount advanced exceeds the cash surrender value.
The accelerated death benefit may also be considered income. Higher income may affect government entitlement eligibility. The payments may also be subject to taxation. Consult your advisor.
Who Counts Life Insurance Assets
A number of government agencies and private companies may want to know about the type of policy you have in place and its cash value. Each has different reasons for the inquiry.
The rules for when life insurance counts as an asset vary greatly depending on who is asking.
Medicaid is a government entitlement program with several components. Each program has unique needs-based eligibility criteria. Sometimes income is the sole criteria. Other times assets are considered as well. Each program is different.
The Medicaid health coverage criteria have changed based on the state where you reside. The Affordable Care Act attempted to expand Medicaid eligibility. Those states approving the expanded criteria now only consider income. Those states declining to expand continue to consider both resources and income.
The expanded criteria did not affect eligibility for Supplemental Security Income (SSI), or Long Term Care coverage. SSI pays claims to disabled adults.
Life insurance still counts as an asset for Medicaid healthcare coverage in states that did not expand, as well as for SSI and long-term care.
Student Financial Aid
One of the best-kept secrets is that life insurance does not count as an asset when qualifying for student financial aid. The resources available to pay for college determine your family expected contribution.
The Free Application for Federal Student Aid Form (FAFSA) does not list cash value policies as a countable resource.
Universal life insurance is a popular vehicle used to fund college expenses for this reason, and others.
Mortgage lenders often consider an applicant’s income and resources when qualifying them for a loan. The surrender cash value of any permanent life insurance is commonly counted as an asset. The cash value can be used to stay current on mortgage payments.
Having a term policy in place does not help you qualify for a mortgage, but can help your family stay current on the payments should you die.
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