12 great uses of life insurance cash, and how to overcome the biggest drawback, paying those expensive insurance premiums.

First? Let's take care of "the bad."

Of course, everyone wants liquidity and cash from life insurance, but it comes at a cost. Paying high insurance premiums. Most people would rather invest their hard-earned cash and current higher-performing assets into creating more wealth. The better management of their cash flow and assets. Or, their wealth is locked up in fixed assets.

The normal solution to this problem is premium financing, but ...

Premium finance sounds good, but premium financing comes with its own costs and drawbacks that could include:

• Being subject to variable swings in the interest rate.

• A reduction in your unified estate and gift tax exemption.

• Future Congressional changes in the tax law.

But is there a better option to premium financing?

Yes. Premium funding. For the affluent, many times this is a better option that doesn't have the risks and drawbacks of premium financing. The ultimate goal is to obtain high amounts of life insurance, without the risks of premium funding, and without writing a check.

You can read more about this in-depth solution here.

Okay, then what are the 12 great uses of life insurance cash that could help?

#1. Estate and inheritance taxes.

The government reminds us that they come first. The Federal Rate is 40%, and they don't want that in assets. They want cash.

But they are not alone. The District of Columbia and 17 states have either an estate or inheritance tax, with rates up to 20%. Again, they want cash.

Life insurance death benefits are typically not included in the taxable estate. So the cash from life insurance can be used to pay those taxes and preserve assets for your heirs. No need to put any valuable assets on a fire sale to raise cash for the government estate tax bills.

#2. Key Man insurance.

The reality? Many businesses are built around one key person.

• With the passing of that person, the value of the company and the company assets could plummet.

• This superstar could have irreplaceable contacts and relationships that now will be lost. Having cash through these difficult times to protect the company's profit is important.

• Business credit limits and supplier credit could be affected.

• The delay in getting competent replacement talent could be lengthy.

• Or, a delay or cancellation of a project in progress gets halted.

The cash flow from life insurance can help businesses navigate and survive these difficult times, especially when cash is needed immediately. Special considerations and proper tax planning can make this an excellent solution.

#3. Business Buy-Sell agreements and funding.

These buy-sell agreements are typically funded with cash, as the selling partner doesn't want inventory, goodwill, or private company stock. If the agreed upon buy-sell agreement can't be funded, then the company's assets, profits, and future could be at risk. No one wants litigation or having the business paralyzed while trying to fund the sale. Without liquidity, the options for resolution are limited. Plus, this ensures the business can operate with sufficient funds while arranging the transfer of ownership.

Having the cash from life insurance can fund buy-sell agreements and mitigate many of these risks. Everyone wants a smooth and prompt transition of ownership in the event of death.

#4. Golden Handshake and Golden Parachute agreements.

A company's continuing prosperity may depend on a key employee's skills. And, the competition is fierce for the top-performing employees. These incentives can act as a retention tool. Key employees know that mergers, shakeups, downsizing, and economic uncertainties happen and they want some protection for their futures.

The cash from life insurance can fund these agreements and help provide stability for both the individual and the business. So, in the unfortunate event of death, these agreements can be fulfilled without liquidating company assets or taking from profits.

#5. Estate Equalization.

Not all family members will have been equally involved in the family's business and asset management. Life insurance can provide cash for inactive family members to get their share of the estate, without impacting the active family members who may be employed or actively involved. Life insurance can fund the pre-agreed cash portion of the estate, so the settlement will go smoothly. There will be no need for forced liquidation of assets to equalize the estate.

#6. Pay debts and reduce leverage.

Many businesses and assets may be highly leveraged. This could limit cash flow and inhibit immediate liquidation of assets from settling an estate. The cash from life insurance can pay off debts, such as mortgages, and business loans, and reduce the leverage of the estate. This frees up more options for the descendants. Plus, it can reduce the stress on the executor and heirs who may not have ready cash to fund leveraged assets.

#7. Make up market losses.

Not every market or asset class will be at peak value when one passes away. Markets can fluctuate wildly. Stock portfolios, real estate, and commodities are reactive to market conditions. Life insurance can provide the cash to equalize and settle an estate, so heirs aren't forced to sell assets at a loss or struggle with the reduced value of the inheritance. The cash from life insurance can make up for any market losses, allowing for smoother transitions and settlements.

#8. Cash flow in retirement.

The good news? Living longer. The not-so-good news? It will take more assets and cash flow to fund the extra years of your lifestyle requirements. A guaranteed cash flow means you won't spend your retirement days with your eyes glued to a trading screen or stressing over the daily fluctuations of the stock market.

The cash value of permanent life insurance can be accessed through withdrawals or loans, providing a guaranteed and steady cash flow during retirement.

#9. Provide for spouse and descendants.

Retirement income may be needed for a surviving spouse or partner. A high percentage 40% of married couples rely on one spouse's income entirely. Without that income, the surviving spouse or partner's retirement savings could be depleted quickly. A lump sum or monthly payout from life insurance can serve as a safety net.

In the case of a family business, the surviving partner or spouse may not have the skills, connections, or desire to continue the business. Life insurance will be their safety net.

Life insurance payouts can act as an inheritance for your descendants, without the hassle or delay from probate or legal fees. The lump sum or monthly payout gives them immediate access to funds. Now, they have the opportunity to do things like travel and further their education in a way that might not have been possible otherwise.

#10. Provide for a favorite charity or school.

You may have charitable causes, endowments, or educational institutions that you want to benefit after you are gone. You want to create an impact long beyond your lifetime. The cash from life insurance can be the donation, without the need for liquidating valuable assets. This can be structured to provide a reliable funding stream for the charity or school in the future. Plus, life insurance payouts are often tax-free, allowing the full amount to go towards the cause.

Gifting assets to a charity can reduce your taxable estate, but it comes at a cost. Charity or non-profit organizations need cash for their operations and projects, not illiquid assets that may require ongoing maintenance.

#11. Private foundation funding.

Many foundations are set up to provide generosity in perpetuity. While private foundations provide tax benefits and can employ family members at reasonable compensation, the main focus is to make a difference to your favorite cause.

Regardless of the initial motivation, private foundations require funding. And, the cash payout from life insurance can be arranged to provide continuing funding for the private foundation's needs.

#12. A financial cushion for the unpredictabilities of life.

Inflation? Medical expenses? Unplanned events? Yes, life happens.

But of considerable concern is estate deficiencies due to aggressive positions taken on estate tax returns. Because of the large amount of taxes on these returns, you can expect more scrutiny. If the positions are challenged, you will want to make sure to have sufficient cash for required adjustments.

Cash is an important part of our lives. There are many reasons why having access to cash can be necessary. With proper planning, life insurance can be a valuable and prudent way to provide that cash.

With premium funding, and not having to write checks for premiums, the life insurance solution can be an efficient solution for your financial and estate needs.