Life insurance has different uses depending on the needs of the policyholders. This is because life insurance can be the solution to myriad problems. In this piece, we’re are going to see how agricultural families stand to benefit from life insurance. Agricultural families comprise of families that own large farms or ranches and they have fewer assets besides the farm. Here are some of the ways:
- Income Replacement
This benefit extends to all parties and not just agricultural families. In this case, the policyholders buy a policy to provide some money for their family to live on when the breadwinner passes on. The family is catered for through the death benefit. To rack up a good amount on the death benefit, ensure that you buy at least 5 to 10 years of the breadwinner’s annual income.
- Equalization of the estate
Life insurance is also effective in equalizing the inheritance among the on and off-farm children. Most family ranch owners are faced by the challenge of being fair to the children who will not be inheriting the farm. Since the wealth of these families comprises of their land and few business assets, in most cases, there are insufficient assets to ensure there is a fair inheritance. Life insurance purchased by the parents with the off-farm children as beneficiaries is what solves this problem.
- Liquidation of the estate tax
Estate taxes come to play nine months after the death of the ranch owner. In most cases, the family does not have the cash at hand to pay the taxes. The ranch owner will, therefore, get a life insurance policy to provide money to pay the tax and to prevent the children from having to sell the property to be able to meet the estate taxes.
- Money for Buy-Sell agreements
In some cases, there might be agreements set in place to buy out other siblings or ranch partners. Again, there might not be money available to ensure there is a smooth buy out. In this case, life insurance is bought to ensure that there is available cash to facilitate the buy-out when the owner dies.
- Charitable remainder trust
This trust can come in handy when bypassing tax upon the sale of ranch property. However, the money in the trust remains in the trust. As such, parents get life insurance as a way to substitute the wealth that is in the trust for their kids.
When trying to achieve all this, things to consider include the amount of life insurance to get and the kind of life insurance to purchase. Work with independent agents and estate planning attorneys to determine this.