Quicken Life Insurance: A Step-By-Step Guide

Quicken users have been discussing how to best track life insurance policies in the software. Some users have been advised to create a generic asset account, while others have been recommended to use an investment account. However, it is important to note that life insurance is not typically viewed as a conventional investment. Additionally, some users have suggested tracking life insurance policies as a savings or checking account, allowing for the transfer of money and accumulation of balance. Others have suggested categorizing life insurance as an expense item. Ultimately, the method of tracking life insurance in Quicken may depend on the type of policy, such as term life or whole life insurance, and the user's specific needs and preferences.

Tracking life insurance in Quicken

Life insurance is an important part of a good financial plan and should be included in your overall financial picture. However, the way you track it in Quicken depends on the type of life insurance you have.

Term Life Insurance

Term life insurance policies typically do not have any cash value and therefore would not be tracked as an asset in Quicken. Instead, you can record the premium expenses in your spending accounts as an Insurance:Life category.

Whole Life Insurance

Whole life insurance policies, on the other hand, have a cash value component that can be considered an asset and should be tracked as its value changes. You can set up a generic "asset" account or an "investment" account to track the value of these policies. Additionally, you can track the premiums paid as expenses.

Tracking Payouts

If you are the beneficiary of a life insurance policy, the payout is generally not taxable and can be recorded in Quicken as "Miscellaneous Income" or "Personal Income>Gift Received". Alternatively, you can use the "Adjustment" category, which will not show up as income or expense in your reports.

Other Considerations

Some users have suggested including the death benefit value of a life insurance policy in Quicken, especially if you want your family members to see it. However, this may not be necessary as you will not be able to access this value during your lifetime. Instead, you can include this information in your will and ensure that your paperwork is stored securely.

How to categorise life insurance payout

When it comes to categorising a life insurance payout in Quicken, there are a few different approaches you can take. Firstly, it's important to note that life insurance policies paid out due to the death of the insured are generally considered a non-taxable event at the federal level and in most states. This means that you have some flexibility in how you categorise the payout.

If you simply want to record the deposit of the payout into your checking account without having it show up as income on any reports, you can use the "Adjustment" category. This is a special category in Quicken that does not impact tax-related reports. Alternatively, you can use an existing Quicken category such as "Personal Income > Gift Received" or create your own category such as "Misc. Income" or "Life Insurance Beneficiary Proceeds". These categories will show up as income on a Category report but will not appear on a Tax Schedule report.

If you want to include your life insurance policy as part of your overall financial picture in Quicken, there are a few things to consider. If you have a whole life policy with a cash surrender value, this should be tracked as an asset in Quicken as its value changes over time. On the other hand, term life insurance policies typically have no value and would not be tracked in the same way. If you have annual policy fees or premiums to pay, these would be tracked as expense items.

Overall, the best way to categorise a life insurance payout in Quicken will depend on your specific situation and how you want the payout to be reflected in your financial reports. You may also want to consult a tax advisor or attorney to understand any potential tax consequences of the payout.

Whole life insurance as an asset

Whole life insurance is a type of permanent life insurance that can be used as an asset. It is the most common type of permanent life insurance and offers the policyholder the ability to accumulate cash value over time. This is because a portion of the premium you pay every month goes into a cash value account, which can be accessed by the policyholder. This is in addition to the death benefit that is paid out to beneficiaries upon the policyholder's death.

The cash value of whole life insurance can be used in a variety of ways to help with liquidity and estate planning. For example, you can borrow against the cash value of your policy, use it as collateral for a loan, or withdraw funds directly. The cash value can also be used to protect wealth and transfer it to heirs, in addition to the death benefit. This can make it easier to split assets evenly among heirs or to pay off debts.

The cash value of whole life insurance can also be useful during retirement, when life insurance needs may decrease. Policyholders can access their cash value before dipping into other retirement savings. Additionally, the cash value grows on a tax-deferred basis, and if the policy is designed properly, it can be accessed tax-free.

It is important to note that accessing the cash value of a whole life insurance policy may reduce the death benefit and available cash surrender value. There may also be surrender charges if the policy is cancelled. As such, it is important to carefully consider the potential benefits and drawbacks of using whole life insurance as an asset.

Including life insurance in net worth calculation

When calculating your net worth, it's important to consider all your assets and liabilities. This includes the value of your life insurance policies, although whether or not you can include this depends on the type of coverage you have.

The two main types of life insurance are permanent and term. Term life insurance is the most popular option as it is more affordable, but it doesn't have any cash value and therefore doesn't contribute to your net worth. On the other hand, permanent life insurance policies have a cash value component that can be included in your net worth calculation. This is because permanent policies last your entire life and accrue a cash value over time from your payments and interest credited by your insurer. This cash value is a true financial asset as it has monetary value that you can use for anything, such as starting a business or paying off a bill.

To include your permanent life insurance in your net worth calculation, you need to determine its cash value. This can be done by considering the different ways cash value policies accrue interest. For example, whole life policies earn interest at a set, guaranteed rate, while universal life policies offer more flexibility with payment amounts, dates, and interest rates.

When calculating your net worth, you can follow these steps:

• List all your main assets (e.g. home, vehicles, antiques) and total their value in dollars, ensuring accuracy.
• Collect financial statements for your liquid assets (e.g. savings accounts, cash, investments).
• Add in the death benefit of all life insurance policies, including those you've personally purchased and those through your employment, if you have the right to choose the beneficiary.
• Make a list of personal valuable items, including those worth at least $500 or more.
• Add the value of all the assets listed in steps 1-4.
• List the value of your major liabilities (e.g. mortgages, car loans).
• List the value of your personal liabilities (e.g. loans, credit card debt).
• Add the value of all your liabilities.
• Subtract the total value of your liabilities from your assets to calculate your net worth.

By following these steps and considering the cash value of your permanent life insurance, you can ensure that your net worth calculation is comprehensive and up-to-date.

Life insurance as an investment

Life insurance is a financial asset that can provide benefits to your loved ones when you pass away. However, it can also serve as an investment vehicle during your lifetime, similar to an IRA or mutual fund. Permanent life insurance policies, such as whole life and universal life insurance, allow you to build cash value over time, which you can then access for various purposes. Here are some key points to consider regarding life insurance as an investment:

Types of Life Insurance Policies as an Investment

The two main types of permanent life insurance that can be used as an investment are whole life insurance and universal life insurance.

Whole Life Insurance

Whole life insurance is the most common type of permanent life insurance. It offers a death benefit and allows the policyholder to accumulate cash value. A portion of your monthly premium is allocated to a cash value account, where it grows at a minimum guaranteed rate specified in your policy. The premiums on these policies typically remain fixed for the duration of the policy.

Universal Life Insurance

Universal life insurance functions similarly to whole life insurance but offers more flexibility. Policyholders can increase or decrease their premiums, cash value, and death benefit within certain limits. The cash value in a universal life insurance policy typically accrues interest over time, which can be borrowed against. However, the premiums are not set and may change, and there is no guarantee on the interest rate earned over time.

Utilizing Life Insurance as an Investment

There are several ways to leverage your life insurance policy as an investment during your lifetime:

• Taking a loan from the policy: You can borrow against the cash value of your permanent life insurance policy. However, if the loan is not repaid by the time of your death, the outstanding balance will be deducted from the amount your beneficiaries receive.
• Using the policy as collateral: Your life insurance policy can serve as collateral for a loan, potentially making it easier to obtain loan approval or secure a better interest rate. Similar to the previous point, any unpaid balance at the time of your death will be subtracted from the benefit paid to your beneficiaries.
• Withdrawing funds: Instead of taking a loan, you may be able to make withdrawals from your policy. However, if you withdraw an amount that exceeds your investment gains, you may be subject to taxes. Withdrawals will also decrease the value of the policy, reducing the death benefit.
• Receiving "accelerated benefits": Some policies allow you to receive benefits during your lifetime if you experience a significant medical emergency, such as cancer, a heart attack, or kidney failure. These benefits typically range from 25% to 100% of the policy's value.
• Surrendering the policy (cashing out): Surrendering or cancelling your policy will allow you to retrieve the cash value you have built up, minus any fees charged by the insurance company. This option may be suitable if you no longer want to maintain the policy and have more pressing financial needs.

Considerations for Using Life Insurance as an Investment

While life insurance can be a valuable investment tool, there are a few considerations to keep in mind:

• Cost and eligibility: The cost and eligibility criteria for life insurance policies often depend on your age and health. You may be required to undergo a medical exam, which is not typically necessary for other investment options like a 401(k) or IRA.
• Tax implications: Withdrawing more than the policy basis (the total amount you've paid into the policy) may trigger income tax on the gains. Taking a loan against the policy can help you access more funds without immediate tax consequences, but interest will accrue, and any unpaid balance will reduce the death benefit.
• Impact on death benefit: Withdrawals and loans from the cash value of your policy will reduce the death benefit for your beneficiaries. Therefore, it is essential to consider their future needs before accessing these funds.
• Alternative investment options: If you do not require the insurance component, there may be other investment options on the market that better suit your financial goals and provide more favourable returns.

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