Personal and Business Insurance Strategies for Farmers
by Stephen Leblanc
Operating most farms is highly capital intensive. If you are like many farmers, you are asset rich and cash poor. You pour all of your hard earned money back into the farm. You know how much blood, sweat and tears it takes every day to ensure your bottom line. That’s why you want to take all appropriate measures to manage your risks and be able to meet unexpected challenges without jeopardizing yourself, your family or the survival of your farm.
One of the most important benefits of a sound insurance strategy is to provide you with tax-free cash when you need it most. In addition to offering many tax and estate planning advantages, a solid insurance strategy can provide greatly needed help when the unexpected strikes.
For example, insurance coverage could benefit you in the following ways:
- Replace your lost income with tax-free benefits in the event of a long-term injury or illness. Consider for a moment how long you and your family can maintain your lifestyle without an income.
- Cover certain overhead expenses in the event of disability. Where will the money come from to pay for your employees, business loans and other operating expenses to keep the farm going and to protect your investment?
- Avoid having to collapse your RRSP savings in the event of critical illness such as stroke, cancer or heart attack. Dollars cashed in from your RRSP are taxable. You will probably survive medically, but you may suffer the financial consequences for years to come. What will you retire on?
- Find a replacement if a key person dies, becomes sick or injured. Do you have the cash flow to take a hit on your profits and to hire a replacement?
- Buy your partner’s interest or shares in the event of his or her death, disability or critical illness. You may have a partnership or a buy-sell agreement in place, which is an excellent start, but do you have the necessary funding available to actually purchase their interest or do you prefer to have your partner’s spouse or child as your new partner?
- Cover capital gains taxes on your death. Your farm may have accrued capital gains well in excess of your capital gains exemption. Do you really want to pay Ottawa a six figure tax bill following the sale of the farm or quota you have worked all of your life to build?
- Cover income taxes for your RRSPs and/or RRIFs. You’ve worked hard all your life to put away a few dollars each year to build your retirement nest egg. Few farmers are aware that, in the event that both you and your spouse pass away, the tax man will take close to 50% of what remains in your RRSPs and/or RRIFs.
- Ensure your estate is divided fairly among your children, through a bequest to those who will not be taking over the farm. Say you have three children and the farm is worth $1,000,000; one child wishes to take over the farm. How will you equalize your estate so the other two children also inherit money or assets with a fair value?
Life insurance, disability insurance, critical illness insurance and long-term care insurance each offer their own benefits when it comes to managing risk and handling unexpected events, as follows.
The death of a business partner, key employee or family member can put any farm into a perilous situation. You cannot prevent the death, but you can manage the risk and help minimize the impact. For only pennies on the dollar, life insurance can help you defray expenses such as the cost of finding a replacement, buying back the shares or interest of a deceased partner, paying debts and income taxes owed by the deceased, or just making sure your spouse and children can maintain their lifestyle.
In terms of succession planning, life insurance can also be an advantageous strategy to take care of your non-farming children by leaving them tax-free policy benefits.
During your working life, you and your workers have a one in two chance of becoming sick or injured for a period of 90 days or more. Disability insurance is an essential component of financial planning for protecting yourself, your business partner and key employees. Disability insurance also protects your overhead expenses, business loans and lines of credit, and funds your buy-sell agreement.
Critical Illness Insurance
Thanks to advancements in medicine more and more people now survive cancer, stroke, heart attack and other critical illness. Chances are good you will survive, but will your finances and your business survive? Critical illness insurance covers you for expenses incurred for a covered illness, providing you with financial stability and allowing you to focus on your health and recovery. You are free to use benefits in any way you wish.
For example, benefits can help you avoid depleting your retirement or business funds. They can compensate your business for the loss of productivity or help hire a replacement. They could allow your spouse to take time off work to be with you. Your insurance could also provide access to new medical treatments or experimental drugs or pay for medication or health care not covered by provincial health plans.
Long-Term Care Insurance
The good news is that thanks to medical advancements, chances are excellent you will live to a ripe old age. The bad news is, the chances of losing your independence will increase. According to Statistics Canada life expectancy at birth is age 83 for women and 78 for men. But your golden years also tend to bring with them frailty and a higher risk of physical and/or cognitive limitations than can hamper your ability to live independently with dignity.
In the event you become unable to care for yourself, who will help you in your old age? In 90% of cases, caregivers are family members, either your spouse or children. Keep your financial and estate plans on track with tax-free funds that will allow you to preserve your wealth and legacy for your children, hire home care or facility care, make any necessary home adaptations, and get services not offered by your provincial health care plan.
You have worked hard to provide for yourself, your family and your business legacy. As part of your overall off-farm investment strategy, make sure you have the right types and the right amounts of insurance to meet your specific needs. There are also a number of life insurance investment products that can help you maximize your estate, minimize taxes, defer taxes, and even eliminate taxes. Don’t procrastinate until it’s too late. There are many differences between various products and companies. Talk to a qualified advisor today and review your current insurance portfolio to ensure that it meets your current and future needs.
Stephen Leblanc is a Financial Advisor for Miramichi and surrounding areas for Front Gate Financial Group. He finds solutions for his clients’ financial situations. “I have been a financial advisor since 2007 and I am motivated when it comes to helping others. I deal with every different bank and numerous insurance companies that guarantee the best rates and products.” Stephen specializes in Life Insurance, Critical Illness, Disability, RRSPs, Annuities, Pensions, RESPs, Blue Cross, Group Plans and Mortgages. In his spare time Stephen is an active member of the community coaching Miramichi Minor hockey, enjoying all kinds of sports and spending quality time with his family. For more information visit his website at StephenLeblanc.ca.
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