April 23, 2024

What Does Liquidity Refer to in a Life Insurance Policy?

Liquidity in life insurance refers to the ease of getting money from your policy. Permanent life insurance offers coverage throughout the policyholder’s life and includes a cash value component. Consequently, the policyholder can obtain money from the policy, if need be, as its value grows. This makes it more liquid. While a permanent life insurance policy offers liquidity, term life does not. Although many life insurance policyholders aim to provide a lump sum to your loved one upon death, having life insurance with liquidity offers a cash alternative in an emergency. Consider speaking to a life insurance agency in Northridge, CA, for trusted advice on buying a suitable life insurance plan and get a free quote.

How Liquidity Works in Life Insurance Plans

A life insurance policy with liquidity works like an investment plan, making it easy to turn it into cash. Your life insurance policy may be termed as a liquid asset if:

Cash Value: Your insurance policy gains liquidity if it has a cash value as it grows, allowing you to withdraw from your policy like a retirement account.
Surrender the Policy for Cash: If you can’t afford the permanent life insurance or no longer require it, you can surrender it for cash.

Benefits of Life Insurance With Liquidity

Once you purchase permanent life insurance, it’ll serve you for life. It eliminates the worry of buying another policy after a decade or two, as long as you keep up with the premiums. The liquidity feature in a permanent life insurance plan provides cash access during your lifetime. Your survivors won’t be the only ones who’ll see its benefits, as you can access cash while still living. Liquidity in permanent life insurance plans applies to permanent life insurance policies with a cash value, including universal, whole, and variable life insurance. These policies have a cash-value account that grows as you pay premiums, providing security you can borrow against if needed. Permanent life insurance costs are significantly higher than term insurance since part of the premiums go to the funding of the cash value account.

How to Inject Liquidity in Your Term Life Insurance Contract

Although term life insurance is not a liquid asset, there are ways to turn it into a policy with liquidity. Most insurance companies have inserted a term conversion rider that lets you turn some or all of your term coverage into a permanent policy. The option to convert your term policy allows you to extend the coverage for an additional premium, depending on your financial goals.

Get in Touch With an Experienced Life Insurance Agent to Understand Your Best Plan

Now that you know what does liquidity refer to in a life insurance policy, you might know too that the liquidity in permanent life insurance provides vital cash flow to avoid selling off your assets in case of an emergency. Although many people avoid permanent life insurance because of higher pricing, you can benefit from liquidity into your policy. Panorama Insurance Agency works with multiple insurance providers to ensure you or your loved ones can access sufficient financial protection. Contact us to get a free quote.

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