Life Insurance for the Farmer

Life insurance is a financial tool that a farmer can use. Its principal purpose is to provide money for beneficiaries and/or the insured’s estate upon his/her death. One of the primary reasons for the purchase of life insurance is to pay off debts upon the untimely death of the farm operator. Another common motive for acquiring life insurance is to provide income for the care of dependents, especially minor children, in the event of the breadwinner’s unexpected demise. Life insurance can be used for a variety of other objectives.

Life insurance needs can vary considerably from one farmer to the next. A young farmer who is building the business is more likely to be carrying a high debt load. He/she probably has growing children. At this period in life higher amounts of life insurance are likely needed and desired. Frequently agricultural producers in this developmental stage have less money available to pay the premiums. At an unexpected death veteran agricultural producers are likely to have more cash and other liquid assets on hand to cover outstanding liabilities, but not necessarily.

There are a myriad of life insurance products from which to choose. However, there are two basic types of life insurance policies – whole life and term. There are nearly countless variations of both types available from life insurance companies.

Whole life policies, which include universal life policies, build cash value within the policies. Although the premiums will be higher per dollar of death benefit, the cash value does serve as a means of saving. Loans can be made against the cash value. The policy can be cancelled and the cash value withdrawn if the insured feels he/she no longer needs the life insurance coverage or wants to invest the money in other ways. While the initial premiums might be higher per dollar of coverage, it’s possible to lock in a premium rate which may be lower than rates for a new or renewed term policy purchased later in life.

When buying term life insurance, only a death benefit is acquired. Term insurance policies are structured in several ways. It can be purchased with an annual increase in premium. Available are policies with premiums level for a specified period of time. Common are five year, ten year, and twenty year policies with a level premium for the specified duration. At the end of the particular term a similar new policy will have a higher premium per dollar of coverage. Credit life insurance is a form of term insurance that, if available from the lending institution, can be purchased when making certain types of loans to cover the outstanding balance upon the death of the borrower.

Age, gender, whether a tobacco user or not, and health at the time of purchase are major factors determining premium rates. Although gender is not likely to change as one gets older, age is definitely going to change. An ag producer’s health may change over a period of years. Certain health conditions may prevent the purchase of life insurance or cause prohibitive rates. This is a factor for a younger adult to consider when selecting the type of life insurance to buy.

Those involved in a partnership may wish to purchase life insurance on the other partner(s) with a death benefit in an amount sufficient to buy out the other partner’s share of the business should the other partner die. A buy/sell agreement is usually created when buying life insurance for this purpose.

As stated earlier, life insurance may be purchased for a variety of objectives, which includes the desire to be able to pass the farm on to descendants, to equalize what is available to give heirs, to just give money to certain parties, to give money to church and charities, to pay final expenses, and numerous other reasons.

It’s a good bet, that in most instances, a combination of whole life and term policies will best serve a farmer’s needs. Every situation is different. It is up to each individual or to each couple to determine what is best for his/her/their needs.