Insurance can keep your farm working - even if you can’t
What would happen to your farming business if you were disabled by injury or illness? According to Canada’s ombudsman for health and life insurance, one in three people, on average, will be disabled for 90 days or more at least once before they reach age 65.
“If you can afford to retire and you are just working because you enjoy it, then maybe you don’t need disability insurance,” says Bill Allen, a certified financial planner with Sun Life in Regina, Sask. “You might be able to just rent out your land and do just fine financially.”
“One in three people, on average, will be disabled for 90 days or more at least once before they reach age 65.”
A personal disability policy can replace up to 85% of earnings from all sources. Traditionally, this was calculated from reported taxable income. Since that doesn’t always work well for farmers, companies have started letting producers include some of the income they have deferred through capital cost allowances.
Farm corporations have additional options they can use to protect themselves if someone who owns at least 25% of the business becomes too sick or injured to perform their normal duties, Allen says. For example, business overhead expense disability ensures the company can always pay its bills. It will cover some employee wages, land rent, utilities, equipment lease payments, scheduled loan payments and interest on a line of credit. Premiums might be tax deductible as a business expense.
You also can take out additional coverage with business loan protector disability if you’ve maximized your business overhead coverage, Allen adds. This type of policy will cover loan payments, but not line of credit, up to the insured amount.
“The costs will vary depending on the quality of coverage,” Allen says. “For example, the definition of disability, how long the income will last and how soon it would start paying out are three ways you can adjust [the costs]. Premiums are based on risk, so an older person will pay more.”
Critical illness insurance is another option, Allen says. It provides a lump sum payment that can be used as needed if you are diagnosed with Alzheimer’s, cancer, heart disease, Parkinson’s, stroke, or one of the other covered medical conditions. It could also be used to fully or partially fund buy-sell agreements, and could provide a timely way for companies to pay out a sick or injured shareholder.
Many different insurance options are available for farm operations, and the right product will depend on the size of your farm and the ownership structure. It is valuable to consult with industry professionals.
From an AgriSuccess article by Lorne McClinton.