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If something were to happen to a key person on the farm today,
What would happen to the operation? Would you alone be able to keep it going?
If this worst-case scenario goes unplanned, changes are the operation will suffer and in some cases collapse.
Many people have life insurance on themselves for the purposes of taking care of their spouse/family but rarely do we own life insurance on someone else’s life.
I think today’s farmers and ranchers make this big mistake too often.
You may be asking why would you need to ensure someone else’s life? Well, think about the fact that if you are farming with your child and God forbid something happens where your child dies, how are you going to farm without him/her? Next scenario that’s more common — If you are the child taking over and your parent dies, how are you going to buy out those siblings or take over all those operating expenses?
If the answers above were “I hope that doesn’t ever happen” or “I don’t know” you need to look at how a Key Man Policy is part of the plan you need to continue the operation after a death.
Key Man Policy Defined: Where the owner of the policy and the insured are not the same person. For example: The child is the owner of the policy, the insured life is the parent and when the parent dies the child gets the death benefit. The child owns the policy, therefore pays the premiums and has access to the cash value.
Some think this sounds morbid, but there are only a few things we can ultimately count on happening. Death is one of them. Having key man policies in place is essential in the planning process for whoever will take over the operation. If a child is going to take over, that child will, in most cases, need money to take over all operating expenses or buy out siblings. If they had a whole life insurance policy on the parent, when that parent passes away they have a significant amount of tax-free money in the form of a death benefit to buy out any siblings or outside interests without having to go to the bank.
Most children are ending up at the banker’s office when they are in their late 40’s to early 50’s to borrow a million or more to buy the place they have farmed for decades.
THIS CAN AND SHOULD BE AVOIDED.
In order to eliminate this unnecessary borrowing and stress at this age, it can simply be taken care of through planning and death benefit.
This death benefit is not only allowing them to purchase the farm but allowing them to do so with discounted dollars! If you have no read the blog post Where to get Discounted Dollars Today you will want to do that. A child who purchases a policy on their parent and receives the death benefit may have only paid 34 cents for every dollar they get in death benefit. Where else can they go to get discounted dollars to take over the family operation?
Not only is the child getting a death benefit but they are getting cash value to use as well while their parent is still alive! The need for financing a farm is a yearly struggle, easing that struggle throughout life is truly priceless and easing the process of death is also beneficial. No one is ready to deal with death, much less the amounts of other decisions that come at that time.
Start thinking beyond yourself and starting thinking of ensuring those who you are farming with or may be taking over the farm from. Being prepared is so very important and the longer you wait to buy insurance on parents the more expensive it is. To get the most for your money and the biggest discount in dollars start as soon as you can before they are 65 is ideal but after is not impossible. Make this a priority and get more answers in the book Farming Without the Bank.
FIRST STEP: if you have not already, is to get and read the book, Farming Without the Bank. There’s an audiobook available too!
SECOND STEP: set up an appointment to visit with me after reading the book by calling 701-751-3917 so we can look at if a Key Man Policy is something that will work with your operation.