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INSURE YOUR FARM’S FUTURE<br />
When Matt and Katie<br />
expanded their dairy,<br />
they never dreamed<br />
they’d need the life insurance their<br />
accountant suggested they buy so<br />
soon. Six months after the 400-cow<br />
dairy was up and running, Matt was<br />
killed in a car accident.<br />
Katie was a great cow person,<br />
but she wasn’t comfortable with the<br />
business management side of the<br />
operation. Just as they had planned,<br />
Katie used the life insurance policy<br />
to pay down the farm debt. That<br />
gave the business some much needed<br />
“breathing room,” and gave Katie<br />
your family, your business and your<br />
estate. As with any risk management<br />
tool, the key, he says, is knowing how<br />
much you need to provide protection<br />
without throwing money away.<br />
Use the following steps to<br />
determine how much life insurance<br />
you need.<br />
Decide why you need it<br />
First, define your purpose in<br />
purchasing the life insurance policy,<br />
suggests Dunteman. Life insurance<br />
is not something you buy and forget<br />
about. It’s part of your financial plan.<br />
In order to know how much<br />
life insurance you need, Dunteman,<br />
be costly.<br />
However, life insurance can be<br />
used to cover the cost of estate taxes.<br />
Contact your accountant or lawyer<br />
to help you examine your liquid<br />
assets and to determine the potential<br />
tax consequences. Then, have him<br />
explain how life insurance can be<br />
used to cover this cost.<br />
“Will my heirs need life insurance<br />
to pay off a large farm debt or house<br />
mortgage?”<br />
When a farm business has a<br />
lot of debt - especially right after<br />
an expansion or for a new startup<br />
operation - life insurance can help<br />
time to grow into the management<br />
role.<br />
Ten years later, Katie and her eldest<br />
son - who by the way has become a<br />
great cow person - are expanding the<br />
dairy again. However, without the<br />
life insurance Katie and Matt used as<br />
a risk management tool, she probably<br />
wouldn’t have had time to learn the<br />
job before the business failed.<br />
Life insurance is a risk<br />
management tool, explains Darrell<br />
Dunteman, accountant and<br />
accredited agricultural consultant in<br />
Bushnell, Ill. You can use it to protect<br />
and David Sousa, certified public<br />
accountant in Tulare, Calif.,<br />
recommend that you ask yourself the<br />
following questions:<br />
“Will my heirs need life insurance<br />
to pay estate taxes?”<br />
Most farm families do not have<br />
enough liquid assets readily available<br />
to pay a large estate tax bill. Depending<br />
on how the estate is structured, the<br />
estate tax bill could run as high as<br />
55 percent of the total value of the<br />
estate. Often, as a result, part of the<br />
farm gets sold, or additional loans are<br />
taken out. Both of these scenarios can<br />
reduce the risk for your family should<br />
something happen to you. Depending<br />
on the amount needed to cover the<br />
debt, you can opt to buy insurance<br />
to cover the debt or to pay it down<br />
substantially. This puts the business in<br />
a stronger financial position through<br />
the transition period.<br />
When deciding how much life<br />
insurance you need, don’t forget to<br />
include the cost of hiring a manager to<br />
run the dairy during the transition.<br />
“Do I need life insurance on a<br />
business partner?”<br />
If you farm in partnership with<br />
page 10<br />
SWISS VALLEY FARMS DAIRYMAN
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