Paul Sanchez
The Washington State Department of Social and Health Services (DSHS) has specific eligibility requirements for its programs, including income and resource limits. While the death benefit of a life insurance policy is typically not considered an asset, certain types of life insurance policies, such as permanent life insurance, can accumulate cash value, which is considered an asset. This cash value can be accessed and used for various purposes, such as loans or collateral. It is important to note that different types of life insurance policies exist, and not all of them offer the ability to accumulate cash value. Therefore, when considering life insurance as an asset, it is crucial to review the specific terms and conditions of the policy.
| Characteristics | Values |
|---|---|
| DSHS | Washington State Department of Social and Health Services |
| DSHS insurance requirements | Contractors must obtain liability insurance before contracting with DSHS |
| Basic insurance requirements | General liability insurance coverage limits are $1 million per occurrence and $2 million aggregate |
| Business auto policies | Must contain a waiver of subrogation or DSHS must be named as an additional insured |
| Professional liability coverage | $1 million per occurrence and $2 million aggregate |
| Business auto policy with a $1 million combined single limit | Required for contractors whose services include transporting clients |
| Life insurance as an asset | The death benefit of a life insurance policy is not considered an asset, but some policies have a cash value, which is considered an asset |
| Types of life insurance | Term life insurance and permanent life insurance |
| Permanent life insurance policies | Whole life insurance and universal life insurance |
| Term life insurance | Designed for temporary coverage and does not accumulate cash value |
What You'll Learn
The death benefit of a life insurance policy is not an asset
The death benefit of a life insurance policy is not considered an asset. However, some policies have a cash value, which is considered an asset.
The primary goal of life insurance is to provide financial stability for your family and/or beneficiaries after you pass away. This is done through a lump-sum payment called a death benefit or a life insurance benefit.
There are two main types of life insurance: term life insurance and permanent life insurance. Term life insurance is temporary and usually lasts for a set amount of time, often between 10 and 30 years. It tends to have lower premiums than permanent life insurance but does not accumulate cash value, and once the term ends, the coverage ends or becomes much more expensive. Because term life insurance does not create cash value, it is not considered an asset.
On the other hand, permanent life insurance, which includes whole life insurance and universal life insurance, can be considered an asset. This is because permanent life insurance policies have an additional living benefit called cash value, which the policyholder can access and use for things like loans or collateral while they are still alive. The cash value of permanent life insurance policies grows over time, tax-deferred, and can be accessed tax-free if the policy is designed properly.
While the death benefit of a life insurance policy is not an asset, the cash value of certain types of permanent life insurance policies can be. This is an important distinction to make, especially when considering eligibility for certain benefits or programs that have asset limits, such as Medicaid.
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Permanent life insurance policies can grow cash value
Permanent life insurance policies, such as whole life and universal life insurance, offer a cash value component. This means that a portion of the premium payments goes into a savings-like account that earns interest over time. This cash value can be utilised in several ways by the policyholder, such as taking out a loan, withdrawing funds, or surrendering the policy for the cash value.
Permanent life insurance policies that build cash value do so in different ways. Whole life insurance policies offer a fixed rate of growth for the cash value, whereas universal life insurance ties the cash value growth to current interest rates, investments, or stock market indexes. Variable universal life insurance, a type of universal life insurance, allows policyholders to invest their cash value in accounts of their choosing, such as mutual funds, and thus offers the potential for higher returns but also carries a higher risk.
It's important to note that building cash value in a permanent life insurance policy can take many years, and the funds allotted to cash value decrease as the policyholder ages, as more of the premium is applied to the cost of insurance. Additionally, permanent life insurance policies that build cash value tend to have higher premiums than term life insurance policies, which do not accumulate cash value.
When considering a permanent life insurance policy, it's crucial to understand the risks and benefits associated with the cash value component. While the cash value can provide financial flexibility during the policyholder's lifetime, it may also come with surrender charges and impact the death benefit paid out to beneficiaries.
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Cash value life insurance can be used for liquidity and estate planning
Cash value life insurance is a form of permanent life insurance that features a cash value savings component. This type of insurance can be used for liquidity and estate planning in several ways.
Firstly, the cash value of life insurance can be used as a source of funds while the policyholder is still alive. This can be particularly useful for emergency funds or to supplement retirement income. Policyholders can borrow against the cash value, with the interest rate being fixed or variable, set by the insurer. It's important to note that if the loan isn't paid off by the time of the policyholder's death, the outstanding balance will be subtracted from what the beneficiaries receive.
Secondly, the cash value can be used to pay policy premiums. Once the cash value reaches a high enough level, the policyholder may be able to use it to cover the cost of whole life insurance policy premiums. For other permanent policies, the cash value can be used to pay the cost of maintaining the policy.
Thirdly, the cash value can be withdrawn, either partially or fully. Partial withdrawals will reduce the life insurance death benefit, and if the withdrawal includes investment gains, that portion may be taxable as income. Full withdrawals will result in the surrender and cancellation of the policy, with the policyholder receiving the cash value minus any surrender or other charges.
Finally, the cash value can be used as collateral for a loan. This may make it easier for the policyholder to get approved for a loan or receive a better interest rate. However, if the policyholder dies before paying back the loan, the outstanding amount will be deducted from the benefit received by the beneficiaries.
It's important to note that cash value life insurance policies tend to have higher premiums than term life insurance policies due to the cash value component. Additionally, it can take several years for the cash value to accumulate to a level where it can be accessed, and there may be penalties for early withdrawals.
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Term life insurance does not count as an asset
Term life insurance is not considered an asset. This is because it is designed to provide temporary coverage for a set amount of time, typically 10 to 20 years, and does not accumulate cash value. Term life insurance is significantly more affordable than permanent life insurance, but once the term expires, coverage may end or the price may increase.
Term life insurance is a form of protection that ensures your dependents receive a death benefit if you pass away while the policy is active. If you outlive the policy, you will not receive any money. Therefore, term life insurance cannot be considered an asset because you cannot benefit financially from it while you are alive.
The main goal of life insurance is to provide financial stability for your family or beneficiaries after you're gone. The death benefit of a life insurance policy is not considered an asset, and this is usually a good thing. Any debt you owe when you die must be paid off before your remaining assets can be distributed to your heirs. Since the death benefit isn't an asset, it can't be used to pay off your debts, and your beneficiaries will receive the full amount.
In contrast, permanent life insurance policies like whole life insurance and universal life insurance are considered assets. This is because they have a cash value component that grows over time and can be accessed by the policyholder. The cash value can be used for liquidity and estate planning, and it can also be borrowed against or withdrawn.
In rare cases, term life insurance proceeds may become an asset if the policy is sold for a profit or if the beneficiary inherits assets totalling $13.61 million or more, which is the current estate tax threshold. However, these are exceptions, and term life insurance is generally not considered an asset.
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Universal life insurance accrues interest over time
Universal life insurance is a type of permanent life insurance that offers flexible premiums and death benefits. It allows policyholders to adjust their premiums and coverage amount as their financial needs change. One of its key features is that it accrues interest over time, allowing the cash value of the policy to grow.
How Universal Life Insurance Works
Universal life insurance policies consist of two components: the cost of insurance (COI) and a savings component known as the cash value. The COI includes charges for mortality, policy administration, and other associated expenses to keep the policy active. The remaining portion of the premium payment is allocated to the cash value, which accumulates interest over time. Policyholders can choose between a level death benefit, which remains consistent, and an increasing death benefit, which grows along with the cash value.
Advantages of Universal Life Insurance
Universal life insurance offers flexibility in premium payments and death benefit adjustments. Policyholders can increase or decrease their premium payments as their financial situation changes. They can also choose to increase or decrease the death benefit to align with their evolving needs. Additionally, universal life insurance offers the potential for cash value growth. The cash value earns interest based on the current market rate or the policy's minimum interest rate, allowing policyholders to build a financial resource that can be accessed through loans or withdrawals.
Disadvantages of Universal Life Insurance
One of the main disadvantages of universal life insurance is the need for active management and regular monitoring. Policyholders must keep a close eye on the cash value to ensure it remains sufficient to cover the insurance costs. If the cash value drops too low, it could lead to higher premium payments or even cause the policy to lapse. Additionally, universal life insurance can be more expensive than other types of life insurance, and the interest rates on the cash value are not guaranteed and can change frequently.
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Frequently asked questions
DSHS stands for the Washington State Department of Social and Health Services.
It depends on the type of life insurance. The death benefit of a life insurance policy is not considered an asset, but some policies have a cash value, which is considered an asset.
Term life insurance is designed for temporary coverage and does not accumulate cash value, whereas permanent life insurance offers an additional living benefit called cash value, which can be considered an asset.
Examples of liquid resources include money in checking and savings accounts, stocks, bonds, annuities, and mutual funds.
