What does liquidity refer to in life insurance policy? Liquidity is referred to how easily you can claim your life insurance with cash values. So if you are wondering what these terms refer to, you’ve come to the right page.
You may have experienced someone knocking at your door, and when you opened it, you’ll see some well-dressed men and women. Well, they’re not there because someone invited them, but sometimes they offer life insurances.
Yes, life insurance can be used whenever accidents, medication, sickness, and sudden death occur in someone’s life. And when we say insurance, it’s the money you kept that keeps on growing overtime.
These insurances can greatly help you when you badly and necessarily needed some cash to spend depending on their terms. However, you may be wondering about some terms used in your contract. Well, let’s clear one of them.
Liquidation In Life Insurance Policy
So, what does liquidity refer to in life insurance policy? Liquidity or liquidation in a life insurance policy refers to how easily you can convert assets into money. Assets include your properties, like houses, cars, and jewelry.
When most people only need simple cash coverage in terms and policies, liquidity in life insurance can boost either an emergency or a retirement fund with people that have a more complex need.
Is Liquidation A Good Or A Bad Thing?
Of course, everything that has been established has its benefits as well as its drawbacks. So you are probably wondering if life insurance with liquidation is a good or a bad thing, you’ve come to the right page. But, first, we’ll discuss some of its benefits and probable drawbacks.
#1. Benefits
We often choose something because of the possible benefits that we could get. May it be for our health, our family, or for ourselves. So what do you think are the benefits of having liquidity in life insurance? Read on.
Benefit #1. Survivor needs
One of the most basic purposes of life insurance is to provide financial assistance to the surviving family members if ever the insurance owner died. The insurance company may provide the immediate source for the burial or cash assistance to the family members to cover expenses, debt, or loss of income.
Benefit #2. Estate needs
The estate needs are most common between families with larger estate shares which requires settlement costs. The tax-free proceeds that insurance could offer are a valuable asset to cover these settlement fees, and you won’t have to sell the estate anymore.
Benefit #3. Business needs
Just like in Estate needs, if a business uses life insurance as a source of income when the person that has been ensured dies, you may use the insurance to pay off the deceased shares from their family. That is usually what happens to people with business needs.
Benefit #4. Corporate life insurances
In Corporate life insurance, the liquidity of the said insurance can help utilize corporate-owned insurances, typically from corporate earnings. The tax-free cash value accumulated from the insurance could fund an executive’s compensation plan at an employee’s death.
#2. Drawbacks
Just like everything, nothing is all good. There may be some flaws with the liquidation in life insurance too. But sometimes, you could ignore them and look at the brighter side of things. Well, not, in my opinion, you need to be aware of the possible drawbacks of your decision.
Disadvantage #1. The business may close down
As the business is made part of a liquidation asset, the business may close down after the owner dies. It will also be no longer allowed to trade as it used to. The company will not be able to use its name to start anew. But, of course, after businesses close down, the employees who work there will also lose their jobs. As a result, some shareholders may also have to pay dividends.
Disadvantage #2. You might lose everything
If the business has built a reputation, you will also lose its trading and other valuable assets. However, business liquidation doesn’t concern with the credit score which the company directors have. But don’t worry as this one usually takes place for those with big amounts of the insurance policy.
Kinds Of Life Insurance With Liquidity
Various kinds of life insurance are available, maybe in your area. First, however, we’re going to tackle the 3 most common life insurances that offer liquidity.
#1. Whole life
A Whole Life Insurance is a kind of insurance that grows by the rate set by your insurance providers at a minimum guaranteed rate. It is like normal savings account wherein you can get as much as you saved with interest.
#2. Universal life
On the other hand, Universal Life Insurance can grow by earning an interest based on a market index performance. The floor and the capacity are set by your provider also. It is preferable for high earners who wish to set aside a tax-free inheritance for their loved ones.
#3. Variable life
Variable Life Insurance is like a stock investment. Depending on the market strength and performance, you could choose whether to add to the investment and let it gain or lose. And that’s it! Regardless, not related to this topic, but you might want to read about the best mattresses for people with arthritis, an interesting and helpful article such as this one.
Conclusion
To sum it up, what does liquidity refer to in life insurance policy? Well, liquidity is referred to assets that you could convert into cash or cash values. It would help if you didn’t worry about the disadvantages of liquidity, but it is a disadvantage for those who have bigger assets.
Whatever it may be, make sure you understand everything and each policy especially when it comes to insurances. You might never know if you’ve been helped or scammed.