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Life Insurance Policies
Life Insurance Policies

This article describes a variety of methods to account for Life Insurance in your Plan.

Nancy Gates avatar
Written by Nancy Gates
Updated over a week ago

Life Insurance Policies

There are a wide variety of life insurance policies on the market. While the Planner does not have a section for life insurance, as long as you know the value and taxation of the policy, the Planner's flexibility will allow you to account for your life insurance policy in your plan.

Cash Value The cash value of a life insurance policy is typically your total paid premiums and the best way to assess the cash value of your life insurance policy is to view your most recent in-force illustration.


Accounting for a Term Life Insurance policy as a death benefit

While term life insurance is typically the most cost effective and common type of life insurance, it does not have any cash value. If you want to enter the receipt of a term life policy as a beneficiary, enter the death benefit as a windfall at the longevity age of the insured. The Planner does not apply income tax to any amounts entered in this section.

* Enter the future value of the policy.


Accounting for a Whole, Variable, or Universal Life Insurance policy as a death benefit

One method of accounting for a cash value life insurance policy in your plan is to model receipt of the death benefit. If you want to enter the receipt of a whole, variable, or universal life insurance policy as a beneficiary, enter the death benefit as a windfall at the longevity age of the insured. The Planner does not apply income tax to any amounts entered in this section.

* Enter the future value of the policy.


Accounting for a Whole, Variable, or Universal Life Insurance policy as an asset (with no withdrawals)

Another method of accounting for a cash value life insurance policy in your plan is as an "Other Asset." In order to do this, head over to Accounts and Assets > Other Assets, press "Add an Asset +", give the asset a descriptive name, and enter the cash value.


Accounting for a Whole, Variable, or Universal Life Insurance policy as an asset and also modeling withdrawals

Withdrawals from cash value life insurance policies are generally taxed on a “first in, first out” (FIFO) method, meaning that the policy owner will receive his or her investment in the contract first before receiving any gains in the policy. In other words, withdrawals from a cash value life insurance policy consist of principal first, and the owner is not taxed on the payments until all of the principal has been distributed. Once the principal has been distributed, payments are made up of gains and will incur income tax.

If you want to account for tax-free withdrawals from a life insurance policy in your plan, we recommend the following:

STEP 1: Navigate to MyPlan > Accounts and Assets

  • Add ➕ an Investment/Savings/Checking account

  • Select manual entry

  • Give the account a descriptive name, "ABC Life Insurance Policy," for example

  • Enter the Account Balance (your cash value)

  • Select Capital Gains as your tax treatment

  • Enter a Cost Basis above your Account Balance. This will ensure that there are no taxes applied to withdrawals.

  • Select your optimistic and pessimistic rates of return

  • Select 0 as your turnover rate

  • Your next step will be deciding whether to include this account in the Planner's default withdrawal strategy or model withdrawals using the Transfer feature in Money Flows

  • This method will account for tax-free withdrawals of principal

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