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Protecting the Family Farm with Life Insurance

Protecting the Family Farm with Life InsuranceThere seem to be but three ways for a nation to acquire wealth. The first is by war, as the Romans did, in plundering their conquered neighbors. This is robbery. The second by commerce, which is generally cheating. The third by agriculture, the only honest way, wherein man receives a real increase of the seed thrown into the ground, in a kind of continual miracle, wrought by the hand of God in his favor, as a reward for his innocent life and his virtuous industry.Benjamin Franklin

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Of all the various types of people I’ve helped in my career as a life insurance agent, my greatest satisfaction has come from assisting farmers.  Helping these individuals have a special place in my heart because my mom was raised on a family farm in southern Illinois.  She lived there with her parents and nine other siblings. I imagine it must have been like an episode of The Waltons because there were two to four kids sharing each of the bedrooms and they had very few luxuries such as indoor plumbing!

Farmers who have contacted me for life insurance have always come across as honest and genuine.  They are looking for help to find affordable policies that protect against current debt and sincerely want to pass a family legacy to future generations. I’m sure there’s a great relief and peace of mind found by the security that life insurance offers, and knowing that you’re not overpaying for it.

If you are a farmer and are deciding if you will need life insurance coverage, this article will summarize best practices and common solutions for a farmer’s life insurance needs.

Identify Your Life Insurance Needs as Temporary or Final Expense

In order to determine if your family will benefit from purchasing a life insurance policy, you must examine your assets and liabilities. To begin, we recommend sitting down with a piece of paper and creating two columns.

Under the first column, list your current debts that you intend to pay off and roughly how many years you expect to pay them off.

Under the second column, write down the estimated amount of liquid assets (cash) needed to pay for your estate taxes or other “final expenses.” This column represents the amount of money that your family will need when you pass away to cover your outstanding debts.

If you will likely be leaving your family with any outstanding debts, we would advise you to purchase a life insurance policy. By leaving this money behind for your loved ones with a life insurance policy, your family will have the money they need to settle your outstanding debts. They can avoid tapping into other cash accounts or being forced to sell property or other tangible assets when you and your wife are both gone.

Temporary Debts

Temporary debts are the debts you intend to pay off during your lifetime, but if you died tonight, they would need to be settled immediately.  These debts are important to keep in mind because if your family does not have the money to settle these debts immediately, they be forced to tap into your existing assets or sell property and equipment in a hurry and at a loss. This is also known as a “fire sale.”

Life insurance agents consider these debts and think in terms of both short and long term financial needs. We’re risk averse, meaning we take the time to help our client’s find the insurance policy or combination of insurance policies that will save them money and suit them the best. At JRC, we have insider’s knowledge of how to coordinate insurance so you are insured adequately, without overpaying, while maintaining flexibility as your life and debts change even into retirement. We’re consumers like you, NOT insurance company employees, so we do our best to share our knowledge of insider’s tips to help clients save on their coverage.

If you have temporary debts, it is important to list each one and how many years until the debt will be paid off. By separating your debts and roughly documenting how long you’ll take to settle the notes, you’re outlining a popular, cost saving strategy in the term life insurance world which is called policy layering. This strategy allows clients to take out multiple policies at a time in order to secure debts that will decrease overtime. Many clients we speak to are unaware of the fact that they can have more than one life insurance policy to insure their temporary debts. It’s not something agents working for life insurance companies will tell you because it can create more work for them and in turn, cuts into their commissions.

In order to best understand the benefits of layering policies, let’s look at a scenario for a farmer with two tracts of land, or “parcels.” Let’s assume that this farmer’s debt consists of these notes and some farm equipment that was recently purchased. This is scenario that we commonly see.

Here are the farmer’s remaining debts outlined debts below:

1)      Parcel One: $500,000 new mortgage with 20 year note

2)      Parcel Two: $300,000 balance with 8 years remaining

3)      Farm Equipment: $200,000 loan to be paid in 5 years

After reviewing the numbers, you can see this farmer has one million dollars in outstanding debts. Based on this information alone, this gives him two different options for purchasing life insurance.

The first option is to simply buy a 20-year term policy for $1,000,000 to adequately insure your temporary debts.   However…the second option is a little more complex. JRC would compare the cost for this policy to the cumulative cost for three separate term policies: a $500,000 with 20-year term, $300,000 with 10-year term, and $200,000 with 10-year term (there are few companies offering 5-year terms…you’ll likely get a lower price for a 10 year term).

For this example, let’s compare the rates for a 55 year old male in “preferred health”.

 

Option 1: Here are the rates for a policy with $1,000,000 of coverage for 20 years:

Term Length Amount of Coverage Monthly Cost Total Cost of Policy
20 years $1,000,000 $293.00 $70,320

 

Option 2: Below are the rates for three different policies that are layered. Each policy purchased insures each item of his temporary debt:

Term Length Amount of Coverage Monthly Cost Total Cost of Policy
20 years $500,000 $148.00 $35,520
10 years $300,000 $56.00 $6,720
10 years $200,000 $41.00 $4,970

 

By layering your life insurance policies, you will still insure your temporary debts, but the savings on coverage is very significant. In this example, layering life insurance saves about $50.00 a month for the first 10 years, and after 10 years, the savings is almost $150.00 a month. If we were to look at the savings over the course of 20 years, the farmer used in this example would be saving over $23,000!

Keep in mind, as soon as your temporary debt is settled, you can cancel most term life insurance policies without penalty. This provides maximum flexibility because you can drop unneeded policies as you pay off your debts or accumulate other assets to mitigate your premature death. If you do not layer your policies, you will not have this option.

For more information on layering term life insurance to insure your temporary debts, (also called policy “laddering” and “staggering”), as well as  other money saving “insider tips,” please see our article, “Affordable Life Insurance.”

We also have a handy calculator to demonstrate estimated savings with policy layering.  Your JRC agent can provide accurate comparisons once when we review your health and lifestyle.   Final Expense Debt and Estate Planning   Determining the amount of life insurance to purchase to pay for your final expenses or debt is a lot easier to calculate than the amount of life insurance needed for estate planning purposes.

If you are purchasing life insurance for estate protection or to reduce your estate tax liability for future generations, you will need the help of a trust attorney. Several critical factors come into play including how your trust is set up (revocable vs. irrevocable), who will be the beneficiary (often the trust), the required dating of the trust and life insurance (generally the trust must be dated first for tax advantages), and how you wish the funds to be used.

Many of these topics are covered in our 7 Costly Errors to Avoid article. If you wish to keep the family farm in the family, your children are most likely your first choice. When figuring out who to pass your legacy down to, you may have already determined that your children have different levels of commitment, or may want to go into some other field (excuse the pun!).

We’ve found The Estate Planning Center offers helpful articles and practical advice for farming clients. These are useful in initiating dialogue as to how family property could be divided. There are many options and considerations, so don’t rush…but do get it done! Setting up a family trust often takes months to complete, and qualifying and initiating new life insurance can take six to twelve weeks. JRC has a number of comprehensive estate planning articles for covering life insurance considerations such as:

  •        Appropriate Life Insurance for High Net Worth Families
  •        How to Avoid Paying Estate Taxes for Life Insurance Proceeds
  •        How to Reduce Estates Taxes with Life Insurance

 

How JRC Can Help

Most people are unaware that it’s unnecessary to call five to ten life insurance companies for quotes. This is because you just need an independent agency representing multiple companies. JRC Insurance Group works with 40 insurers that provide the most competitive rates. They are all rated “A” or better by AM Best, which is the most recognized rating system in our industry.

Our “one-stop shopping” approach allows us to match you to the company that provides the lowest rates for your age, health history, current medications, and other factors underwriters use to determine your unique pricing.  There are actually over 1200 licensed life insurance companies in America, with most having 12 risk categories.

If you do the math, that’s over 14,000 possibilities! You’ll die of old age before checking them all.

JRC is employee owned so you’ll always be treated like a valued customer. We all previously worked at large call-center agencies that had quotas for each agent and mandatory scripts to read. I personally removed myself from that atmosphere because I realized the lasting impact, positive or negative, that big time companies held over families.

As a consumer myself, I wouldn’t want my family’s future generations to be negatively impacted by a professional trying to meet unrealistic expectations by corporate America. Life insurance is not one-size-fits-all and your agent should be asking you the right questions, not reading from a piece of paper. Give us a call and you’ll see the difference. We are caring professionals with many years of experience representing families, business owners, and farmers that are seeking financial protection for what they’ve worked so hard to achieve.

Since we’re a regulated industry, we can truly say you won’t find a lower price for your insurance policies. We’re available today to help you get the ball rolling. We will also be available in years to come as your needs change or questions arise.

Call JRC today at 855-247-9555   We will find you the best life insurance company based on your needs, health, and lifestyle. Our service is free and we can provide you with an accurate quote in just a few minutes.

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