Do you consider your life insurance policy to be an asset like your house, cash in your bank account, or the gold bullion bars under your bed? Is life insurance the new asset class? Are our net worth’s about to skyrocket? It is an interesting idea that has been gaining in popularity in the personal finance circles. There are several reasons that you may want to consider your life insurance policy to be an asset. But, there are also plenty of reasons not to think of it in that way.
Why Your Life Insurance May Be An Asset
I will start by saying that I am not a fan of this new philosophy. I personally do feel that life insurance policies are an asset. They are simply a tool. They aren’t a tangible asset that you can touch. With that being said, there are a few circumstances where I can see that people would include their life insurance policies as an asset. Most of them revolve around whole life insurance policies which are very expensive for people to own. There are much better uses of your principle payments than whole life insurance which is also known as cash value insurance policies.
I could understand some arguments that whole life insurance that will not expire as long as you maintain your principle payments could possibly be considered an asset. Most have a considerable payout which would boost your net worth calculations if included in your list of assets like cash, investments, real estate, and the like. There is another argument that whole life policies that can be cashed in for a certain sum of money could also be another reason to think of the policies as an asset.
I Wouldn’t Be So Fast Adding It To Your Balance Sheet
Do you own a term life insurance policy? I would argue that this type of life insurance policy is not the best type to add to your personal balance sheet and include in your net worth calculations. Term life insurance policies are a great value, and they simply provide life insurance coverage for a set number of years such as five, ten, twenty, or even thirty. But, after those years expire, so does your life insurance policy. Talk about a vanishing asset. If you add term life insurance to your net worth like any other asset, you would give yourself a false sense of doing better than you actually are.
Listing life insurance as an asset especially when calculating your net worth can give you a false sense of security. It will inflate your net worth by the face value of your policy’s payout should you die. The only way of course for you to be worth that much money is if you actually were to die. Life insurance is designed to replace lost income should you unexpectedly die. It should be used to protect people who depend on your income and would need to have it replaced should you kick the bucket.
What do you think? Is life insurance an asset? Do you include it in your net worth calculations?