How Much Is My Life Insurance Policy Worth?

Harbor Life Helps Seniors Get the Most out OF Their Financial Assets

Free Policy Estimate

How Much Is My Life Insurance Policy Worth?

Why Advisors Shouldn’t Neglect Life Insurance as an Asset Class

Last Updated: July 8, 2024
Money growing from investment

As a financial advisor, you tackle the full range of financial situations. You might have one client who’s working to make up for a late start on retirement savings and another who’s tapped out allowed annual 401(k) contributions and needs another tax-deferred account for long-term savings. Both of those clients might rely heavily on traditional assets — equities and fixed income — as the building blocks of their wealth plan. But could the strategic use of life insurance alongside those stocks and bonds enable them to realize their goals faster or with more certainty?

The answer is, quite possibly, yes. Life insurance has some compelling characteristics for long-term savers. As a tax-advantaged asset class that’s both versatile and largely unaffected by financial market and economic trends, life insurance has a role to play in retirement planning. 

Here’s a closer look at the benefits of life insurance as an asset class, an example of how life insurance can be used in financial planning, and an overview of how life insurance may fit into your clients’ portfolios.  


Is life insurance an asset?

Is life insurance an asset? Is whole life insurance an asset? Is term life insurance considered an asset? These are important questions for anyone who’s considering using life insurance as part of a broader financial plan. The first thing to know is that only permanent life insurance policies, those that accumulate cash value, are considered assets. The most common types of permanent life insurance are whole life insurance and universal life insurance. Both have a built-in savings feature that’s funded by a portion of the policyowner’s premium payments. The balance in that savings account at any point in time is called cash value, and it’s accessible to the insured in different ways. Some policies allow for direct cash withdrawals and others allow for low-cost loans that use the cash value as collateral. 

Another way the insured can access the cash value is by selling the policy outright in a life settlement. A life settlement provider purchases the policy in cash for an amount greater than the policy’s cash surrender value but less than the policy’s face value. It was actually a life settlement court case in the early 19th century that solidified the concept of life insurance as an asset. At that time, an estate executor named Russell sued an individual named Dr. Grigsby who had purchased a life insurance policy as a means of payment from an individual who needed medical care. The insured passed away later on and the executor believed the death benefit should be paid to the insured’s estate rather than to Grigsby. The Supreme Court upheld the sale of the policy, arguing that life insurance is an asset and, as such, could legally be sold to a third-party.

Finally, term life insurance, which provides a death benefit but does not build cash value, is not considered an asset. The exception is a term life policy that’s convertible to a whole life or universal life policy. Once converted, that policy would be an asset.


Benefits of life insurance as an asset class

Life insurance as an asset class has several characteristics that play well within a long-term financial plan, including tax perks, a low correlation to the financial markets, and the ability to unlock wealth by way of a life settlement. 

Tax-deferred growth

Cash value in a life insurance policy grows without tax implications. Policyholders generally don’t incur taxes until they liquidate for an amount greater than what they’ve paid cumulatively in premiums. Unlike other vehicles that allow for tax-deferred growth, like 401(k)s and traditional IRAs, life insurance is not subject to Required Minimum Distributions (RMDs) or early withdrawal penalties. One exception, though, is the modified endowment contract (MEC). An MEC is a life insurance policy that’s been funded in excess of federal limits. MECs are subject to early withdrawal penalties.

Tax-free death benefit to loved ones

Life insurance is one of the simplest ways to transfer wealth to heirs upon death. When the insured passes away, the beneficiary files a claim and the death benefit is paid out in full. No inheritance or income taxes are charged to the beneficiary and no probate is required. 

Not affected by economic conditions

Life insurance is a contract between the insured and the insurance carrier. As long as the insured’s passing isn’t fraudulent, the carrier must pay out the death benefit as specified in the contract — regardless of what’s happening in the economy or the financial markets. 

Option to sell through a life settlement

Senior policyholders have the option to sell their life insurance in a life settlement for a lump sum of cash — as much as 60% of the policy’s face value. That means life insurance can function as an emergency fund of sorts. Should the policyholder need money for healthcare expenses, debt paydown, or something else, a life settlement could be the answer. And if the policyholder doesn’t face liquidity issues during his or her lifetime, then the insurance can stay in force and the death benefit will be paid to beneficiaries as planned.


Example of using life insurance as an asset in financial planning

A study by Ethical Edge Insurance, LLC published in 2010 concludes that adding whole life insurance to a portfolio could increase returns while lowering risk. The analysis is based on a 45-year-old male in good health who invests $500,000 in municipal bonds at 4%. Researchers compared two scenarios. First, they established the baseline portfolio growth if the man reinvests all of his bond payments into more municipal bonds at the same 4% rate. Researchers then evaluated the portfolio growth if the man instead uses his bond payments to fund a whole life insurance policy.  

In the reinvestment scenario, the individual accumulates total wealth of $2.9 million by age 89. Using the bond payments to fund a $1 million whole life policy, however, he creates $3.5 million in wealth, which includes the value of the bonds and cash value in the life insurance. Add in the death benefit and the total value of second scenario’s portfolio is $4 million at age 89. The analysis concludes that the life insurance portfolio grows at 4.77% annually with a risk rating of 2.09, while the bond-only portfolio grows at 4% annually with a risk rating of 2.48. 


How life insurance fits into your client portfolios

The above analysis is just one scenario showing how life insurance can help clients reach their financial goals. There are many other applications of life insurance within a high-performing portfolio — particularly for high-net-worth individuals who’ve either maxed out their tax-advantaged retirement plans or would like to create a tax-free inheritance for their loved ones. Life insurance can easily serve the purposes of tax-deferred earnings growth or end-of-life wealth transfer. But it’s also versatile enough to suit changing financial circumstances. If a client unexpectedly faces a liquidity shortfall, for example, a funded cash-value life insurance policy could be worth a large amount of cash in a life settlement. 

Harbor Life Settlements can assist with estimating the value of your clients’ insurance assets. The market value will normally be well in excess of the policy’s surrender value. That can be game-changing news for a client who needs to raise cash quickly. The proceeds of a life settlement are commonly used for healthcare expenses or debt paydown, but they can also be used for discretionary spending on, say, travel and entertainment. 

Because the money can be used for any purpose, clients who are comfortable financially may also be interested in knowing what their insurance is worth in cash. It could be enough to fund bucket list experiences that were previously considered out of reach. Even clients who don’t want to sell right now may appreciate knowing their policy’s value, if only for peace of mind.  today and we’d be happy to prequalify your clients’ life insurance at no cost or obligation.


Find out how much your policy is worth.

Picture of Catherine Brock

Catherine Brock

Catherine Brock is a personal finance writer who's been featured in The Motley Fool, Refinery29, and has made appearances on ABC7 Chicago, FOX2News St. Louis, KCAL9 Los Angeles, Fox19 Cincinnati, WGN TV Chicago and WCPO TV Cincinnati. When she's not writing, she can be found riding a horse in the country or shopping online for clothes.

Leave a Reply

Recent Posts


Harbor Life Settlements Will Help You Get The Most Money For Your Life Insurance Policy