Are you facing this question?
“How do we take care of our children that don’t farm to be sure we are leaving something to everyone, not just the kid taking over?”
Don’t worry, it is a very typical question when an estate plan is being created. Most estate planners will fill this void with life insurance - but there is one big problem ...
Recently I met with an estate attorney and he informed me that the life insurance was not working anymore. He stated that the life insurance policy for the “non-farm” kids was not keeping up with the value growth of the farm and it was going to have a big effect on his clients and their heirs. His concern was also that the parents are now much older and the cost of insurance is too expensive so they can’t afford another policy to make up the difference.
This is a great example of why it is so important to have the CORRECT type of life insurance.
Many life insurance policies, even permanent policies, have a death benefit that stays level. Which means the death benefit never grows over the years and remains the same until the day you pass. This is a standard process because people don’t want to pay a dime more than need be for death benefit. (We were conditioned long ago to think this way.) If you, the buyer, wants the cheapest insurance you can buy then there is no extra to increase death benefit.
MORE INFORMATION: Different Policy Types
This issue does not normally arise with a WHOLE life insurance policy. Whole life, unlike other permanent products, is structured to have the death benefit increase over time. That is one of the reasons why it is a ‘tish more “expensive” than other life products.
The estate planner indicated life insurance is one of their strategies to make sure the off-the-farm kids get something while the kid farming can take over the farm without having to buy it from the bank or from siblings. GREAT strategy for keeping the farm in the family but it’s unfortunate that their client and/or the estate planner didn’t have all of the information about life insurance.
This is a great lesson for those of you doing estate planning if you have or are thinking about life insurance to fill the gaps. Should you already have a policy look at it to be sure it is correct and the death benefit grows. If you don’t have a policy, then do your due diligence and make sure the agent you purchase from knows what they are doing and ask this question:
Will the death benefit on this policy increase in the future to compensate for the increase in value of my farm?
An agent helping you with this strategy should know better, but always be sure to ask and never assume an estate planner/attorney knows anything about life insurance. They are not licensed and can be more dangerous than helpful. We cannot expect them to know, but at the end of the day, it’s truly not their job and they should recommend a professional.
The meeting I had with this attorney, who had 30+ years of experience, was very interesting, to say the least. I have 100% faith he knows the law but let me say, I am sure I taught him a few things that he wished he had known 30 years ago. He told me he’s worked with multiple agents along the way who hadn’t ever shared this information.
This is a true indicator that there are very few life insurance agents who know how to USE life insurance. Most of the 386,000 agents aren’t any better than the banker or accountant. All too often, they are ONLY looking at a short term need and filling it, they are not looking long term at what you will need.
Take a look at what you have for life insurance and what you need for those off the farm kids. If you don’t know where to start, call our office and schedule a time to visit with me. If your policies look good, I’ll be honest. A good life insurance agent who knows what they are doing is worth gold….it may make the difference between saving the farm or not.
If you want to learn for yourself how to use life insurance and work directly with me, get a copy of Farming Without the Bank. My clients tend to end up knowing more than their existing agent.
Have a good example of how life insurance has saved the estate plan? Have questions about this article? Leave a comment!
Mary Jo is proud to be a Certified Infinite Banking Practitioner helping family farms keep more of the profits, create financial systems, and bring financial clarity to an uncertain industry though correctly structured whole life insurance policies.
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