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When do you need life insurance?

The challenge with life insurance — unlike drying corn, which we know will occur each fall — is that we don’t exactly know when “later” is, we just know “later” could be anytime after reading this sentence. You know someone’s going to need the money; it’s just a matter of when.

Against the backdrop of a modern harvest scene, the backs of three people are seen walking toward the machinery. From left are a woman, a toddler and a man. The man and woman each are holding the hand of the toddler.
When life insurance is an important part of the equation for a farm plan, it is important to have it in place before it's too late.
Erin Ehnle Brown / Grand Vale Creative LLC
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When do you need it?

That is a loaded question and it depends upon what “it” is. For farmers, that also may depend on the season, but here is an example of me needing “it” this spring.

About 300 acres into planting, our primary tillage tractor developed a pin hole in a steel oil line. I thought this would be a quick, early morning repair. After changing the hard-to-get-at oil tube, we discovered the problem went deeper and it involved the steering pump as well.

What did I need? A big tractor. When did I need it? Now! Fortunately, a month earlier, I had bought a spare big tractor for such a time as this. Within a few hours, we were rolling again and went the rest of the spring without any problems.

Now, what if I need something in the future but not necessarily right now? Like my corn dryer. I don’t need it today, or even next month, but sometime in late September or early October, I need my corn dryer working.

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What if it is something that I never really need, but it’s nice to have. For some reason, right now I’m thinking of a peanut buster parfait ice cream treat. I love those; I don’t really ever need it, but it sure is nice to have once in awhile.

So now let’s talk about two things that most people would rather not think about. The first is dying and the second is life insurance. Going through my examples in reverse order of when you need things, there are some people who never really need life insurance — not because they won’t die but because maybe they don’t have a spouse or children or only one child or no farming heir or estate taxes will not be an issue. Life insurance simply would be an extra, but never really needed.

The next group of people might not seem to need insurance right now, but it might become very valuable down the road. The challenge with life insurance — unlike drying corn, which we know will occur each fall — is that we don’t exactly know when “later” is, we just know “later” could be anytime after reading this sentence. You know someone’s going to need the money; it’s just a matter of when.

So what about those who know they need the life insurance right now? Well in some cases, that could mean it is too late. But assuming they are still living and healthy and their plan indicates the need for insurance, they may be able to get it in place right now.

For me this spring, I was lucky I had a spare tractor ready to go, right now. I would have been scrambling without it. Kind of like when I see people scramble when they need a whole bunch of cash for a buyout at death and they don’t have it. Although the date of death is somewhat unpredictable, death should not surprise us. It will happen to exactly 100% of us.

Here is a little fun fact. Just the increase in interest rates would increase land payments about $150/acre if borrowing money for a purchase based on $12,000 land. Do you think cash right about “now” would help if coordinated with a plan?

If a person knew that a certain piece of equipment had a 100% chance of a breakdown while planting or harvesting, would you have a plan for that? If a person knew they would need money at a certain time or event that was triggered by a death, would it make sense to have a plan for that? So, when will your operation need cash? Sooner, later or never? Keep in mind that insurance without a plan is like a tractor without land to farm.

Myron Friesen is the co-owner of Farm Financial Strategies Inc. in Osage, Iowa. He can be contacted at 866-524-3636 or friesen@farmestate.com.

Related Topics: MYRON FRIESENFARM FINANCES
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