It's a trick getting them lined up, but in the end the numbers never lie. And one of the truths that the financial numbers point to, which doesn't get a lot of attention in the number-crunching process, is that off-farm investments can pay.
It seems counter-intuitive that farms, capital intensive and always scraping to put enough together for the next down payment, should be looking to place hard-earned cash somewhere else. It's not an easy pitch to make to producers, but chartered accountant Mario Dumas considers that there's value to be discovered. “It's a big job to convince farmers to off-farm invest,” he says, “but we preach off-farm investments.”
Dumas, located southwest of Montreal in Ormstown, Que., advises a lot of capital-hungry farmers, either dairy farmers needing to buy more quota or cash croppers facing land at $5,000 per acre and up. He tries to demonstrate that with a few strategic adjustments, producers can profit from off-farm investments, especially life insurance.
“I sometimes feel like a life insurance salesman when talking with farmers,” Dumas quips. He notes that life insurance is important not only for preventing financial catastrophe should the unthinkable happen, but also in terms of succession planning. It can be an advantageous strategy in taking care of non-farming children.
It's difficult enough trying to sell the farm to one child at a price that's both affordable to buy yet profitable enough for the farmer to retire on, without having to think about the other siblings in the family. Life insurance can take care of that worry by leaving the policy benefits to the remaining children. This can help avoid buyouts when one or all of them want a financial share of the family's farming legacy.
This is where the numbers come in. When producers counter that they need any available cash for on-farm investments, Dumas advises longer-term loans (lower payments) while putting the savings from monthly payments into life insurance and other personal investments such as RSPs. He crunches the numbers to show that cash flow is not affected, and equity is the same or better through compound interest.
It may be a better overall investment strategy, according to Dumas, because the proceeds from life insurance are not taxed, leaving more money to the estate and less pressure on the retiring farmer to set aside money for the other children. The proceeds from life insurance are liquid (as opposed to land or other farm assets) so it's easier to divide to accommodate any “fairness” desires.
And if the numbers are not convincing enough, Dumas also explains that life insurance can relieve liquidity concerns when the family is going through a difficult period from the loss of a key person in both the family and the farming operation.
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Life insurance is a necessity, but just like buying a car - you can either get a good deal or get taken. This article gives you the tools to get the best deals and the most for your hard earned money.
"How to Save Big on Life Insurance in Four Easy Steps"
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