Alyssa Lane
Life insurance is an important part of financial planning, and many people use Quicken to manage their money. However, it can be tricky to figure out how to add life insurance to Quicken, especially when it comes to whole life insurance policies, which have a cash value and a death benefit value. Some people choose to add the cash value as an asset account, while others opt to track it as a savings or checking account. Term life insurance policies, on the other hand, typically have no value and therefore are not tracked in Quicken. When it comes to receiving a life insurance payout, it's generally not taxable, so you can record it in Quicken as a special category of income or as an adjustment.
What You'll Learn
Tracking life insurance in Quicken
Life insurance is an important part of a good financial plan. While you may already be accounting for premium payments in Quicken, there are a few different ways to track life insurance in Quicken, depending on the type of policy you have.
Term Life Insurance
Term life insurance policies typically have no value and therefore are not tracked in Quicken. However, if you want to include your term life insurance policy in Quicken, you can add it as an Asset Account and set the opening balance to the value of the policy. You can also add any relevant details in the Account Details>Comments section. Any premium expenses can be tracked in your spending accounts under the Insurance:Life category.
Whole Life Insurance
Whole life insurance policies have a cash surrender value, which should be tracked as an asset in Quicken. You can add the cash value as an asset account and update the balance as it changes over time. You can also track any premium expenses in your spending accounts.
Other Options
Some users have suggested tracking life insurance as a checking or savings account, while others have suggested creating a separate Asset account to avoid impacting normal workflows in Quicken. You can also use the Alert Center in Quicken to set up reminders about insurance policies' expiration dates.
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Including life insurance in net worth reports
Permanent life insurance policies contain a cash value account, funded over time by the policyholder's payments plus interest credited by the insurer. This cash value is a true financial asset because it has monetary value that can be used for anything, such as starting a business, paying off a bill, or funding a child's education. It is important to note that the face value of a life insurance policy should not be included in net worth calculations because it is only realized by the chosen beneficiaries upon the policyholder's death.
For high-net-worth individuals (HNWIs), typically defined as those with at least $1 million in liquid or investable assets, life insurance can play a crucial role in estate planning, business protection, and succession planning. It provides a tax-free death benefit that can cover estate taxes, ensuring that beneficiaries receive their full inheritance. Additionally, the cash value of a life insurance policy can provide liquidity to facilitate the distribution of business assets among beneficiaries or fund estate taxes, preventing a forced sale of the business.
When considering whether to include life insurance in net worth reports, it is essential to seek advice from a financial planner, licensed insurance agent, or estate planning attorney, especially for high-net-worth individuals with complex planning requirements.
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Categorising life insurance as an asset or expense
Whether or not life insurance is considered an asset depends on the type of policy. Term life insurance, which only pays out to your dependents in the event of your death, is not considered an asset. This is because it has no cash value and does not accumulate cash value over time.
On the other hand, whole life insurance and other types of permanent life insurance with a cash value component are considered assets. This is because you can withdraw funds from your policy while you are alive. The cash value of a whole life policy can be used in a variety of ways to help with liquidity and estate planning. For example, it can be used to help protect wealth and transfer it to heirs, or to pay off debts.
When considering life insurance as an asset, it is important to note that the death benefit of a life insurance policy is not considered an asset. This is because any debt that you owe when you die must be paid off before your remaining assets can be distributed to your heirs. However, the cash value of a life insurance policy, which is a secondary benefit, can be considered an asset as it can be accessed by the policyholder.
In rare cases, proceeds from a term life policy might become an asset if the policy is sold for a profit or if the beneficiary needs to pay an estate or gift tax on the total assets they inherit. Additionally, during divorce proceedings, whole life insurance or any other form of cash value life insurance is considered an asset and must be listed when dividing property.
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Adding life insurance to Quicken
Life insurance is an important part of a comprehensive financial plan. While you may already be accounting for premium payments in Quicken, there are different approaches to adding your life insurance policy to your Quicken account, depending on the type of policy you have.
Term Life Insurance
Term life insurance policies typically have no value and therefore are not tracked in Quicken. However, if you want to include your term life insurance policy in Quicken, you can add it as an expense item. You can also record the details of your term life policy in the Account Details>Comments section so that your spouse or beneficiary can access the information if needed.
Whole Life Insurance
Whole life insurance policies have a cash surrender value, which should be tracked as an asset in Quicken. To do this, create an Asset Account and set the opening balance to the value of the policy. You can then track any premium expenses in your spending accounts. Remember to update the value of the policy periodically as it changes over time.
Other Types of Life Insurance
For other types of life insurance, such as universal life or endowment policies, you can track the cash value as an investment account. Treat payments on the policy as transfers from your bank account into the investment, and then expense them in the investment account. The cash value is handled as cash in the investment account, and the estimated death benefit can be managed using dividend reinvestment transactions.
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Viewing life insurance as a savings account
Whole life insurance policies can be viewed as a savings account because they offer a guaranteed rate of return and can supplement retirement income. The cash value component of these policies accumulates over time, providing a source of funds that can be accessed through loans or by surrendering the policy. This makes whole life insurance a form of "forced savings," which can be beneficial for individuals who want to ensure their loved ones have the financial resources they need, even after their death.
However, it is important to note that the premiums for whole life insurance policies tend to be much higher than those for term life insurance. The cash value component of whole life insurance also takes time to grow, and the rate of return can be relatively low compared to other investments. As such, whole life insurance may not be suitable for everyone, and individuals should carefully consider their financial goals and risk tolerance before deciding whether to view their life insurance as a savings account.
In Quicken, users can track the cash value of their whole life insurance policies by creating an Asset account and setting the opening balance to the value of the policy. They can also track premium expenses in their spending accounts. This allows individuals to include their life insurance as part of their overall financial plan and ensure that their loved ones have access to the necessary information in the event of their death.
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Frequently asked questions
You can track a whole life insurance policy as a savings account or a checking account. This way, you can transfer money to it (your payments) and the balance accumulates (cash value). You can also track withdrawals (loans), interest payments, fees, etc.
You can include your Term Life insurance policy under Assets and Net Worth. You can also track the premium expenses in your spending accounts as Insurance: Life category.
Life insurance payouts are generally not taxable. You can record the insurance payment as a special Category for a one-time event or simply drop it in Miscellaneous Income. Alternatively, you can use the category of "Adjustment" or Personal Income > Gift Received.
You can show the cash value of your life insurance policy in your Net Worth report. The death benefit value is not relevant to you but only to your heirs.
You can set up life insurance in Quicken by creating a new account. You can choose from the icons for Property, Vehicle, or Assets.
