Using Life Insurance as an Asset

July 15, 2025

Life insurance¹ is often seen as a straightforward tool: a safety net for loved ones in the event of death. But for those with more complex financial lives, it can play a far more strategic role. Beyond offering a death benefit, certain types of life insurance¹ —specifically permanent policies—serve as powerful financial assets, providing long-term flexibility, liquidity, and tax-efficient solutions that can support broader wealth strategies.  

When thoughtfully structured, life insurance ¹ can help preserve capital, provide liquidity without forced asset sales, and enable seamless wealth transfer—while still offering protection for your family.  

The Structure and Strength of Permanent Life Insurance ¹  

Unlike term insurance ¹, which offers coverage for a set period, permanent life insurance ¹ is designed to last a lifetime and includes a cash value component that grows over time. This feature introduces unique opportunities for individuals seeking stability, growth, and control across different life stages.  

Several types of permanent life insurance ¹ offer distinct advantages:  

• Whole Life Insurance¹: Known for its stability, this policy offers guaranteed premiums and predictable cash value accumulation, making it an appealing long-term asset.  
• Universal Life Insurance¹: Offers flexibility in premiums and death benefits, with growth tied to interest rates or equity indexes.  
• Variable Life Insurance¹: Allows for investment¹ of the cash value in market-driven subaccounts, appealing to those seeking higher growth potential with a risk tolerance.  

Each structure serves a different purpose, but all can be integrated into a more sophisticated financial plan aimed at protecting wealth while enhancing financial agility.  

Cash Value as a Liquidity Resource  

The growing cash value within a permanent policy can be accessed during your lifetime, offering a discreet and flexible source of liquidity—particularly valuable when navigating tax events or seizing investment ¹ opportunities.  

Common uses include:  

• Policy Loans: Borrowing against the policy’s cash value offers access to capital without triggering a taxable event or disturbing other investments¹. These loans typically carry low interest and require no credit approval.  
• Withdrawals: Partial withdrawals may be available tax-free up to the amount paid in premiums, though they may reduce the death benefit or affect the policy’s performance.  
• Premium Offset: In later years, accumulated cash value can be used to pay ongoing premiums, preserving liquidity elsewhere in your portfolio.  
• Supplemental Income: During retirement or in transitional periods, cash value can serve as a reliable source of tax-advantaged supplemental income, providing flexibility without drawing down traditional assets.  

This kind of accessible liquidity is especially useful when other capital is invested ¹ in illiquid or long-term vehicles, such as private equity, real estate, or closely held businesses.  

Preserving Wealth and Providing Liquidity  

One of the greatest advantages of life insurance ¹ is its ability to provide immediate liquidity at the time of death—often when it is needed most. For estates holding significant real assets or concentrated equity positions, life insurance ¹ can offer the necessary funds to:  

• Cover estate taxes or liabilities  
• Equalize inheritances among heirs  
• Buy out business partners or fund succession plans  
• Prevent the sale of key assets under unfavorable conditions  

When held in an irrevocable life insurance trust (ILIT) ¹, the policy proceeds can remain outside the taxable estate, creating a highly efficient transfer of wealth. Structured correctly, this allows your beneficiaries to receive the full benefit of your estate with minimal erosion due to taxes or settlement delays.  

Strategic Considerations  

Integrating life insurance ¹ into a broader wealth plan ¹ requires thoughtful design and ongoing management. Key factors to consider include:  

• Structure and Ownership: How a policy is owned—personally, within a trust¹, or via a business—can have major implications for taxes and control.  
• Premium Funding: Options such as premium financing allow for leveraging capital to fund large policies without significantly impacting liquidity or investment¹ allocations.  
• Performance and Oversight: Regular policy reviews are essential to ensure projections align with actual performance, especially in market-sensitive products like variable universal life.  

Working closely with a financial advisor and estate planning attorney is critical to tailoring the right policy and ownership structure to your long-term objectives.  

Life Insurance as a Pillar of Strategic Planning  

When thoughtfully integrated, life insurance ¹ goes beyond protection—it adds structure, control, and long-term strategic value. From providing estate liquidity and mitigating tax exposure to supporting multigenerational wealth planning ¹, permanent life insurance ¹ can be a powerful tool for preserving and enhancing your legacy. 

As part of a diversified and forward-looking strategy, it enables you to meet today’s needs while preserving the future you’ve worked so hard to build.  

---

Disclaimer:

¹ Investment, wealth planning, trust and estate, and insurance products and services are Not FDIC Insured, Not guaranteed by the Bank, May Lose Value 

This bank content is for informational purposes only and does not constitute legal or tax advice. Please consult your legal or tax advisor for specific guidance tailored to your situation. First Western Trust Bank cannot provide tax advice. Please consult your tax advisor for guidance on how the information contained within may apply to your specific situation.