Death does not prevent taxes from being owed and bills that need to be paid. There is a long list of potential expenses associated with a person dying, including:
- Federal and state property taxes
- Funeral and funeral expenses
- Unpaid medical bills
- Debt (eg mortgage, credit cards, car loans, private student loans)
- Executor's fees
- Legal fees
- Legal costs
- Valuation fees
- Small business costs (eg salaries, training of a successor)  Liquidity refers to how easily an asset can be converted into cash. For example, checking and savings accounts are liquid. They are easy to access and you get the money right away.
Real estate and coin collections are illiquid. These assets cannot be quickly sold for cash. You must first find a buyer, and there is a risk that you will be forced to sell below market value due to the fact that you need cash quickly or that there is not enough buyer interest.
Life insurance provides liquidity.
How does life insurance provide liquidity? ?
Life insurance can provide liquidity in two ways: during the life of the insured and immediately after the death of the insured.
During the life of the insured, a permanent life insurance can provide liquidity through cash values. The policyholder (who may or may not be insured) can have access to cash values for all purposes, either through withdrawals or loans on the insurance, tax-free. These cash values can be easily accessed and they are paid out quickly.
After the death of the insured (who may be the insurance owner), the death benefit provides immediate liquidity for family members.
In many situations, a family's assets may be tied up in their home, a retirement plan or a business. Without another source of capital, your family may need to liquidate assets to cover final costs, pay off debts, or compensate for lost income. Life insurance provides the liquidity that family members need so that they can avoid stress and financial turmoil in selling assets.
Life insurance is one of the best tools to ensure that your estate has enough cash to meet creditors' claims and pay taxes. and other costs that arise when an estate dies. In addition, if your estate is large enough to potentially be subject to property taxes, your life insurance can be arranged so that it is not included in the gross wealth.
The life insurance death benefit provides tax-free cash that is available soon after death. It can give your administrator money to pay taxes and debts, and also provide inheritance or compensation for your beneficiaries.
For business purposes, life insurance provides the answer to another liquidity need: a buy-sell agreement. If the owner or partner of a company dies, their share of the business passes to their heirs. Life insurance that goes through a pre-arranged buy-sell agreement can be paid to the owner's estate in exchange for their interest or share in the business.
Without this arrangement, the heirs of the deceased owner would now have ownership of the business. . The heirs may not be the best choice for the company's success.