Using an IUL Policy to Maintain a Farm

Oldest Son looking forlornly at his plate: We need to go to the Goat Lady. We have too many vegetables.

Me: Eat your dinner

A regular conversation whenever we visit my parents in “farmville” New York

Introduction:

Owning and maintaining a farm is not just a livelihood; it’s a way of life. However, farming comes with its unique set of financial challenges, including fluctuating incomes, unpredictable expenses, and the need for long-term financial stability. In this blog post, we’ll explore how a small Indexed Universal Life (IUL) policy can serve as a strategic financial tool to help farmers sustain and grow their operations while providing valuable protection for their families.

Understanding Indexed Universal Life (IUL) Insurance:

Indexed Universal Life (IUL) insurance is a type of permanent life insurance policy that offers a death benefit to beneficiaries while also accumulating cash value over time. Unlike most whole life insurance, IUL policies offer flexibility in premium payments and potential growth linked to the performance of stock market indices (we work with carriers and designs that can also allow flexibility in whole life).

Using a Small IUL Policy for Farming Needs:

It falls down to five categories; Financial protection for your family, Supplemental Income, deferred growth, payment flexibility, and long term financial planning. Each of them is extremely important. We will use the comparison of a bank to better understand the numbers.

Financial Protection for Your Family:

One of the primary benefits of an IUL policy is its death benefit, which provides financial protection for your family in the event of your passing. As a farmer, ensuring the financial security of your loved ones is crucial, especially considering the inherent risks and uncertainties associated with farming. This one will be the easiest to compare, as life insurance is designed specifically for a larger payout than whatever a person would have kept in the bank.

IUL as Supplemental Income Source:

The cash value component of an IUL policy can serve as a supplemental income source for farmers during lean or challenging times. Farmers can access the cash value through policy loans or withdrawals to cover operating expenses, purchase equipment, or invest in farm improvements without relying solely on external financing. As opposed to a bank, where you would need to be approved for a loan and accept whatever terms during an emergency, Life insurance is fast, easy, and at a significantly lower cost to borrow against. I may have mentioned it before, but our boat was struck by lightning, and processing a loan to ourselves was relatively painless.

Tax-Deferred Growth:

The cash value accumulation in an IUL policy grows on a tax-deferred basis, meaning farmers can potentially accumulate savings faster compared to taxable investment accounts. This tax advantage can help farmers build a financial cushion for future needs while minimizing tax liabilities along the way. Interest rates at most banks nationwide are going to be less than 1% (less than inflation). There are high yield accounts that currently can do better, but they will slash their yields when the interest rates lower. The interest in life insurance will generally be higher more consistently and can be accessed tax free.

In Whole Life polices where you are guaranteed growth, you will usually see 4-6% interest growth. So for a $12,000 a year policy, you would see $600 of growth vs $60. And with an IUL, it can potentially be much greater. At the time I am typing this, I just locked in a client at 12% for the rest of the year. So by doing nothing, she will be getting an additional $1440 this year, vs the $60 she would be getting in a bank.

Flexibility in Premium Payments:

IUL policies offer flexibility in premium payments, allowing farmers to adjust their contributions based on their financial situation and cash flow. During profitable years, farmers can allocate more funds toward their IUL policy to accelerate cash value growth, while during lean years, they can reduce or suspend premium payments temporarily without forfeiting coverage.

This one I can’t compare to a bank on its own, so instead of stretching a metaphor until it breaks, i’m just going to reassure you how awesome a feature this is. Very few things financially will let you have control like this in a contract. You will have a minimum amount owed to keep contract and a maximum amount to make sure it stays in the correct tax state. As long as you pay literally anything between those two numbers, you will have an operational death benefit and cash value to borrow from. The “premium” number for IUL’s essentially becomes what projections for future growth are based off of.

Long-Term Financial Planning:

Farmers can use a small IUL policy as part of their long-term financial planning strategy, providing a stable foundation for retirement and estate planning. By consistently funding the policy over time, farmers can build a substantial cash value reserve that can supplement retirement income or serve as a legacy for future generations. The banks will offer IRA’s (Individual Retirement Accounts) and there is nothing wrong with getting one. I will eventually make a different post comparing the two. They are in fact very similar if you are looking at a smaller IUL as IRA’s as capped at $6,000 a year. An IUL is also more comparable to a Roth IRA since it allows for tax free access to gains.

Conclusion:

Owning and operating a farm requires careful financial management and planning to navigate the inherent challenges and uncertainties of agriculture. A small Indexed Universal Life (IUL) policy can be a valuable addition to a farmer’s financial toolkit, offering financial protection, supplemental income, tax advantages, flexibility, and long-term growth potential. By leveraging the benefits of an IUL policy, farmers can sustain and grow their operations while ensuring the financial security of their families for generations to come. If you’re a farmer interested in exploring how a small IUL policy can support your farming needs, consider consulting with a net wealth finance specialist to discuss your options and tailor a solution that aligns with your unique goals and circumstances.

Oldest Son meeting his very first goat