What Does Liquidity Refer To In A Life Insurance Policy?
Life insurance policies with cash value, including whole life, final expense, and universal life, are considered liquid assets. Liquidity in life insurance refers to the policyholder’s ability to easily access cash through the policy. However, term life policies usually lack liquidity unless they are converted to permanent coverage with a cash value component.
The death benefit payable to beneficiaries is considered a liquid asset once it is claimed. The payout is in the form of cash that can be used for any purpose, making it even more liquid than when the insured was alive. This feature is why many people choose to purchase life insurance as a means of providing their loved ones with a liquid asset.
| Policy Type | Liquidity |
|---|---|
| Whole Life | High |
| Final Expense | High |
| Universal Life | High |
| Term Life | Low |
Overall, liquidity in a life insurance policy is an essential feature to consider when purchasing coverage. It is crucial to understand the policy’s terms and conditions to determine which type of coverage best suits your needs.
