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On the surface, life insurance seems like a straightforward type of insurance policy. But could it be a financial asset? That depends on the type of life insurance policy, as well as your perspective. Some types of life insurance, as well as several other insurance types with cash value components, count as assets. This should be kept in mind for many events, such as divorce and other legal proceedings, but also because they may aid you in obtaining financial security when and if it is ever necessary. Learn why taking advantage of life insurance as an asset could be a wise idea, that could provide you with massive gains, especially at your time of need. |
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Understanding Assets
An asset is a purchase made by someone who expects its value to increase in the future. In most cases, assets take some time to appreciate (meaning they increase in value). Stock shares or houses are ideal examples, showcasing the slow but sure growth of an asset. Insurance shares several similarities to these examples. The output is mostly contingent on an unfavorable occurrence – but its payout is the main reason it is considered an asset.
An asset class is a body of assets having shared characteristics. Traditionally, most investors look at asset classes and think of things such as real estate holdings, bonds, and stocks. Like tons of other asset types, insurance offers contract holders a sizable cash flow in the event of an unfortunate occurrence. In life insurance, the timing and size of cash flow are drastically different from real estate holdings, bonds, stocks, and other traditional asset forms.
Insurance is particularly distinct when thinking about the risk and returns. Life insurance stands out from traditional asset classes as it has an entirely different outlook on risk, return, and distribution.
Life Settlements Are Useful for Converting Insurance Policies Into Assets
Life settlement companies are responsible for a life insurance policy’s cash sale to a third party. It is quite similar to viatical settlements. These settlements developed when the AIDS epidemic was in full swing. During that time, numerous policyholders sold their insurance policies after learning they would not survive as long as they initially expected to when buying the policy.
Life Insurance Is Not a Liability
Most people who sell their life insurance policies for a life settlement are seniors above the age of average life expectancy. In most cases, these individuals require cash to retire for a variety of reasons, such as unexpected financial hardships or medical expenses. These settlements are also often known as “senior settlements.” By obtaining a sizable cash settlement, insured parties can supplement their retirement income with a tax-free payout.
Considerations for Having Life Insurance Assets
A negative aspect of owning life insurance assets is the way it impacts your Medicaid eligibility. This is why adequate retirement planning is critical to your wealth-building plans. Having a well thought-out strategy will ensure you don’t have to worry about being eligible for Medicaid.
Final Considerations
Everybody should include cash value life insurance in their holistic financial plan. Life insurance provides you with a non-correlated, stable asset that is capable of acting as a safety bucket for saving your assets until a need arises. It would even be fair to state that having life insurance assets could be one of your best investment decisions.
For help with life settlements and ensuring that you are in the best position for selling your life insurance policy, contact professionals through the Life Insurance Settlement Association (LISA). Be sure to work with professionals that will have your best interests in mind and will help you get the most value for your policy.