Answer
Term life insurance is not considered an asset for Missouri tax credit purposes. The state's tax credit is based on net worth, defined as total assets minus liabilities. Since term life insurance has no cash value, it is excluded from the asset calculation.
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How Missouri Calculates Net Worth
Missouri's net worth calculation follows the Internal Revenue Service definition with a few adjustments. Assets include cash, securities, real estate, and any financial instruments with a market value. Liabilities include mortgages, loans, and other debts. Life insurance policies are only counted if they are permanent (whole or universal) and carry a cash value that can be withdrawn.
Why Term Life Is Excluded
Term life policies are contracts that provide a death benefit but do not accumulate cash value. Because they cannot be liquidated or borrowed against, they do not contribute to a taxpayer's net worth. Therefore, they are omitted from the asset side of the net worth equation used for Missouri's tax credit.
Implications for Tax Credit Eligibility
When calculating the tax credit, Missouri looks at the net worth threshold. Since term life insurance does not increase the asset side, it does not affect the credit eligibility. However, if you hold a permanent life insurance policy with a cash value, that value would be included and could reduce the credit amount.
Key Takeaways
- Term life insurance is not counted as an asset for Missouri tax credit calculations.
- Only permanent life insurance with cash value is included in the asset list.
- Net worth determines credit eligibility; term life does not alter it.