Life insurance and farm succession

(J.M.) WHOW CAN LIFE INSURANCE FIT INTO A SUCCESSION PLAN?

(Steve S.) When farmers hear the words life insurance, the instinct is often to run the other way. But over the years, I’ve seen just how valuable life insurance can be when it’s used properly in a succession plan. It is one of the most effective estate and farm planning tools available. One of its biggest advantages is that it provides tax-free cash exactly when it’s needed most—at the time of death. Life insurance payouts pass outside of a will and are protected from creditors. The policyholder decides who gets what, making it a flexible and customizable option that can help protect both your family and your farming legacy.

Every farm situation is different—policies can be implemented as part of an overall wealth solution and can be especially valuable when combined with managing other assets. The key is to determine the right insurance product, the amount to insure, and how to manage payouts to beneficiaries, while incorporating everything into the overall succession plan.

One simple way to get started is to ask yourself, “If I died last night, what is going to happen versus what would I like to happen?”

The answer to this question can inform decisions about farm succession, asset management, and family relationships.

CAN YOU OFFER SOME PRACTICAL TIPS FOR USING LIFE INSURANCE AS A SUCCESSION TOOL?

(Spencer S.) Absolutely, but first, it’s important to consult with a qualified and trusted advisor to find the right fit for you, your farm, and your family.

Start by examining your farm assets, estate, or farm business as a whole and ask questions. Do you have a plan to cover your debt if you pass? How will the assets be divided? What do you consider fair versus equal when it comes to sharing wealth and the farm with the next generation?

Life insurance isn’t just for the older or outgoing generation; it’s a tool for people of all ages. Farm succession can happen at any time, at any age and under any circumstance. Be sure to leverage this tool early in life to ensure your family can maintain and manage the farm, even if you aren’t around.

HOW DO I DETERMINE HOW MUCH COVERAGE I NEED?

(Steve S.) To get the most out of life insurance as a succession tool, you need to decide how and when the insurance payout will be distributed.

In many cases, the amount insured is paid out upon a person’s death. In some farm families, insurance payouts are incorporated into an estate plan or will and aren’t paid until after the second spouse (mom or dad) passes. The timing of payouts is important and should be factored into when and who will need the money to manage the farm.

Determining the value of the policy is a big decision. In some cases, it makes sense to insure the amount of debt you currently hold. That way, if you pass, your spouse or child who wants to farm can keep the business

running. Some may choose an amount that reflects the value of the farm, or a desired amount that they would like to pay out to their beneficiaries. Just remember, whatever amount you are insured for (and the resulting payout) is a reflection of your decision at a point in time.

Some farmers leverage life insurance as a tool to manage farming and non-farming siblings or beneficiaries. In these cases, the amount payable can reflect or support the division of the farm’s assets, or supplement the amount allocated to non-farming children, especially if most of the farm’s equity is tied up in the farm itself. Another advantage of life insurance is that the amount payable and the beneficiaries are confidential. This makes life insurance a valuable tool, particularly in families experiencing conflict.

WHAT OTHER IMPORTANT INFORMATION SHOULD FARMERS KNOW ABOUT LIFE INSURANCE?

(Steve S.) You must apply for and be approved for life insurance—you don’t just buy it. So, the best time to purchase life insurance is when you are healthy.

There are various types of life insurance policies, so be sure to work with a qualified and trusted advisor, ideally one who understands farming and the intricacies of farm succession.

Remember, life insurance is not just about money—it’s about protecting relationships, honouring your life’s work, and giving your family the peace of mind to keep the farm strong and your legacy alive. •