An asset refers to money invested in funds for the purpose of earning returns on such investment. Assets could be tangible assets like home, valuables or intangible assets like savings, retirement plans which give value over time.
Is Insurance an asset class?
Insurance being an asset class depends on the type of insurance plan undertaken.
Term life insurance
- Insurance plan which protects your family members in the event of your untimely demise.
- Tenure of term life insurance is set for a specific time period.
- The death benefit is paid to the beneficiary in the event of the death of the policyholder during the policy term.
- There is no cash value component.
- As such, term life insurance cannot be considered as an asset that will give returns over time.
Permanent life insurance
- A specific component of premium for permanent life insurance plans is put in a savings component known as cash value, like in whole life insurance.
- Cash value component value depends on the individual policy undertaken.
- The cash value element grows over time giving a return on your investment.
- As such, whole life insurance is considered an asset.
Does this imply that one should opt for an insurance policy only which has a cash value component to it? The type of life insurance policy which one should go for would depend mainly upon the purpose for which the plan is required.
Points to Remember:
You have to choose an insurance plan based on your financial needs.
Both term life insurance and permanent life insurance have their pros and cons, so one should choose wisely.