How Life Insurance Helps Protect the Family Farm
If you own a farm, you know just how much work goes into every day and you want to protect that hard work for years, maybe even generations, to come. You also know how expensive it is to keep your farm running and maintained — costs you want to be sure whoever inherits your farm is able to afford.
That’s where life insurance can help.
As part of your farm succession planning, life insurance can help protect your farm and keep it in the family by providing your loved ones with money they can use to pay for the many expenses farms can incur, from livestock to crops to new facilities.
How Much Life Insurance Do I Need for My Farm?
How much life insurance you need for your farm depends on several factors. Tallying these can help you understand just how much life insurance is necessary to keep things up and running should you pass away and leave the farm in your loved ones’ hands. It’s also important to consider that even if you pass down the farm while you’re still alive, your life insurance can still help your heirs maintain financial stability when you pass away.
The types of things to keep in mind when considering the amount of life insurance you need can vary from farm to farm, so here are a few common factors to think about.
How Big Is Your Farm?
The acreage of the property and size of any buildings on it, plus any field or pasture space you rent or own need to be valued by an accountant familiar with farms. This includes the value of your home and its mortgage, if it still has one. This will give you a baseline to work from when deciding how much life insurance to purchase to help protect your family farm. At the very least, your heir and their family will likely have to pay for the land they live and work on, regardless if the farm is continued by them or not.
How Much Farming Equipment Do You Have?
All the farming equipment you need to smoothly operate your farm should be valued, as well as annual maintenance costs. If your heir suddenly needs to repair or replace a piece of equipment, or even if they just want to upgrade later, having the income from your life insurance’s death benefit can help them pay for the expense. Take inventory of all your equipment and regularly update it to stay on top of your life insurance needs.
How Many and What Kind of Farm Buildings Do You Have?
Assessing the types of buildings and facilities you use on your farm can help you decide how much life insurance to purchase. Make sure you add up operation costs, maintenance costs and any loans you have on the buildings to get an accurate value.
How Much Do Your Crops and Livestock Cost?
The annual costs of crops, planting them and their maintenance over the growing season should factor into your life insurance policy amount. If you raise livestock, you should assess the costs of purchasing new livestock, feeding the ones you have and their annual maintenance, transport and processing fees.
Do You Have Any Farm Debt?
If you pass away with outstanding debts, the payment for those will come due and be taken from your estate before any of that estate gets passed on to your heirs. Life insurance can help curb the expense of outstanding loans and keep the estate from having to liquidate any assets to pay off those debts.
How Much Are Your Planned Funeral Expenses?
Aside from the farm itself, there’s the matter of final expenses to consider. In order to keep things organized, you might want to take out a second, smaller policy for yourself that covers the costs of potential medical expenses and the cost of a funeral, whether that includes cremation or a full burial with coffin. If taking out a second policy seems overwhelming, just factor your final expenses into the policy meant to financially protect your farm.
Whole Life Insurance and Cash Value Loans
Life insurance can also help you protect your farm financially while you’re still alive. If you have a whole life insurance policy, you can typically take out loans against its cash value, using that money to help pay for things like unexpected medical expenses. Remember, any loans you take out against a policy will accrue interest, and any outstanding loan balance — which equals the loan’s value plus the interest — will be deducted from the death benefit at the time of claim. If the loan balance grows too large for the cash value to support it, the policy could terminate.
Protecting what matters most means preparing for the future. Connect with your American Family Insurance agent to discuss your life insurance options.