Did you know you can sell all or a portion of a life insurance policy, even term insurance?
(4 minute read)
When it comes to financial planning, it’s important to understand how your assets work and how quickly they can be converted into cash, especially if an emergency situation arises. That’s where terms like liquid and non liquid assets come into play. It’s certainly important to have both of these types of assets for a well-balanced financial plan. However, understanding which investments fall into which category can help you identify how your savings and investment approaches impact your overall financial strategy—something that’s important for short- and long-term planning.
This article will explore questions like “what is a non liquid asset?” and provide non liquid assets examples to help you better understand how to categorize your investments. But first, let’s explore liquid assets to provide some context.
What is a Liquid Asset?
A liquid asset is something that can be quickly and easily converted into cash without much or any impact on its value. Liquid assets are important because they cover our living expenses and can be used in case of emergency. Cash is the most common liquid asset, as it’s easily moved around and you typically don’t have to do anything special (or pay any fees) to access it. For example, if you need to pay a medical bill, liquid cash is often the easiest method to do so.
A list of liquid assets might include:
- Money in checking or savings accounts
- U.S. Treasuries maturing within a year
- Mutual funds
- Certificates of Deposit (CDs)
- Retirement funds once of age
Categorizing liquid assets can get murky, however, and some are considered less liquid than others. Some of these investments—like CDs—may have early withdrawal fees, making it less liquid than cash, for example. But, the fee may be lower than any interest earned in the CD, which means the impact of the overall investment may not be diminished.
What is a Non Liquid Asset?
The opposite of liquid assets, on the other hand, is non liquid assets. Non liquid assets are sometimes referred to as illiquid or fixed assets. These assets can’t be quickly and easily converted into cash—at least not in an amount that matches the asset’s actual value. Nonetheless, non liquid assets are an important part of financial planning.
Non liquid assets examples include:
- Personal and investment real estate
- Personal items like jewelry or automobiles
- Retirement accounts before meeting retirement age
Like liquid assets, non-liquid assets can be confusing, too. For example, cars or jewelry can certainly be sold quickly using fire sale methods to sell them at a reduced price. However, these sales aren’t going to reflect the true value of the items, and you’ll lose out on a good amount of money. That’s why they’re considered non liquid.
Are these Common Investments Liquid or Non Liquid?
We’ve compiled a short list of commonly-asked questions to provide you with quick yes or no answers to if these items are considered liquid or non liquid.
- Is a house a liquid asset? No. Real estate, whether it’s a personal home or an investment property, is non-liquid due to the length of time it takes to sell it at value.
- Is a car a liquid asset? No. Most vehicles cannot be sold quickly for their value, making them non-liquid.
- Is a savings account a liquid asset? Yes. This money can be accessed quickly and easily whenever you need it. Many people keep the majority of their most liquid money in savings or checking accounts.
- Is a retirement account a liquid asset? That depends. Once you’ve reached retirement age, most retirement accounts are liquid. However, until you’ve reached that age, retirement accounts are non-liquid. This is because withdrawing early often incurs large penalty fees.
- Is a life insurance policy a liquid asset? That depends. For life insurance policies, liquidity refers to how easily you can access the cash benefit. This mostly applies to permanent life insurance, as term life insurance doesn’t have a cash value. And even among permanent life insurance policies, how liquid they are varies based upon how the funds are invested. It is also important to know that regardless of what kind of life insurance policy you hold, you may be able to sell it for cash—providing an additional aspect of liquidity.
Did you know you can sell all or a portion of a life insurance policy, even term insurance? Selling an unwanted life insurance policy is no different than selling your car, home or any other valuable asset that will create immediate cash. Contact us today to learn more.
Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.
Life Settlement Advisors