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Life Insurance As a Risk Management Tool

Lisa Quist
Educational Opportunities: 
Grain, Dairy, Swine, Beef, Timber, Young, Beginning Farmers
Home > Education & Events > August 2020 > Life Insurance As a Risk Management Tool

Too much rain. Not enough rain. Low commodity prices. Hail. Disease. There’s no doubt that farming is a risky business. So many factors are out of your control during the year. A solid risk management plan helps ensure your income will stay steady even during that hard August freeze that no one could have predicted. Crop insurance? Check. A marketing plan? Check.  

But what about life insurance? According to the 2019 Insurance Barometer Study, 43% of Barometer respondents don’t own any life insurance at all, and of the respondents that do own life insurance, 18% only own group life insurance through an employer. So what’s the big deal? It is, after all, just one more premium to pay, right?

When you think about it, life insurance  — especially for farmers — is so much more than just the hassle and cost of a premium. Unfortunately, we have clients who have learned the hard way that life insurance is just as important to your risk management toolbox as crop insurance. What would your farming operation do if the farming spouse died unexpectedly? After all, a sudden heart attack can be just as unexpected as that August freeze. Without proper protection, survivors may be forced to sell assets to pay off debt and — before long — the only option left is to sell your family farm. It’s heartbreaking when an untimely death forces survivors to sell the farm outside of the family.

Here are just some of the ways life insurance can be used as a key piece of your comprehensive risk management toolbox:

Debt Protection: Volatile markets make protecting your debt even more important. Having life insurance to cover your total loan obligation will help to reduce unpleasant financial surprises for your survivors.  With life insurance, the last love note you will leave for your family will be a death benefit check.

Estate Planning: Less than 10% of family owned businesses make it to the third generation. Life insurance is often used as a part of a properly executed estate plan to ensure that G1’s wishes at the time of death are able to be executed.

Fund a Buy-Sell Agreement: A properly written, funded and reviewed buy-sell agreement will help keep the farm in the family – even in the event of an untimely death.

Key Person Coverage: After losing the key person in the farming operation, extra salary expenses may be necessary to keep the farm running. The proceeds of a life insurance policy can be used while the surviving family makes a plan for their new normal. This can help eliminate the need to make decisions quickly during a highly emotional time.

Owner Equity: Lenders prefer to see G2’s owner equity at 65-75%. Life insurance can help reach that goal and will help ensure the surviving generation is still able to have the loan capability needed to keep the operation running.

No one wants to think about their own death or the death of a loved one. However, the responsible thing is to have a plan in place if disaster strikes. Just like knowing what to do during a tornado or fire, having a proper plan for life insurance really makes the difference for those left behind and grieving when the unthinkable happens. Risk management doesn’t have to be scary — in fact, it should be the opposite!  The important part is who you talk to. Sometimes, poorly planned life insurance is almost worse than none at all (although some is always better than nothing). Working with a life insurance specialist who understands farming and how to properly position life insurance specific to your farming operation makes all the difference. The time to design the right life insurance plan and complete your risk management toolbox is right now, before your family needs it.

Lisa Quist is a Life Insurance Specialist with Compeer Financial. For more insights from Lisa and our other experts, check out
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