The following is a true story about Farm Credit customers. Unfortunately, it’s a story that we see play out all too often among customers who don’t include life insurance as a part of their overall financial plan.
A young married couple, both age 25, with three young children came to Farm Credit to finance a home and land. By today’s standards the loan and total debt this young family had was not that big. The loan request was for $71,000, and the customer had other debt of about $30,000 for autos, etc.
He worked as an electrician and she worked in a local nursing facility. Their two incomes were more than adequate to retire the debt on the farm and autos and provide a comfortable living for the family of five.
At the time the loan was made, we offered the option of life insurance and the customer agreed to buy a term life insurance policy for $75,000, that would cover the real estate loan debt if anything happened to him. The first year premium was a mere $152, and was included in the loan proceeds.
After the loan was made, the life premium notice from Minnesota Life would have been billed by the insurance company. After that first year, the premium was not paid or insurance kept in force.
On an evening in early March 2009, this young man tucked his kids in for the night and went to bed himself. The sad thing is that he never woke up the next morning. He died in his sleep during the night.
He left a wife and three small children in grief, and in debt. For the past year she has struggled to keep her job, feed the kids, and make the farm loan payment. Thanks to help from parents, she’s been able to stay on the farm where she and her husband had dreamed of growing old.
Nobody expects the worst to happen to them. While we have little control over the tragedies in our lives, we do have control over the steps we can take to protect our loved ones financially, should the worst happen.
Insurance and Risk
As farmers or ranchers, you embrace a variety of risk every day. It’s possible to manage a lot of risk with planned protection for unforeseen peril.
Insurance is protection against potential risk, and there is a myriad of insurance available for purchase that is designed to protect you, your farm, your family and their future.
If you borrow money to purchase an automobile, no doubt your lender requests auto insurance, with a loss payee clause. The same is true with debt on a farm or home; the lender requires insurance to cover a variety of risks that you might encounter, and to protect both your and the lender’s interests.
Debt and Life Insurance
Many consumers, including farmers, overlook the importance of providing risk protection in the form of life insurance that will adequately cover or partially pay off a mortgage or real estate debt should they die.
As a lender who’s seen the unfortunate consequences of inadequate or non-existent life insurance too many times, my goal is to remind you to consider the impact that your debt will have on your family and their future if you were no longer in the picture. It really matters, and it matters a lot.
At Farm Credit we offer term life insurance to borrowers as an added value financially related service. Often, when loan size or credit risk dictate the need, we require borrowers to have life insurance in an amount that would pay off their debt obligation. However, a borrower is not required to purchase the insurance through Farm Credit. They can do that with a local agent or assign an existing policy if they have one in place.
I’m reminded of a story about a man who is walking along the beach. He discovers thousands of starfish simply floating into shore and dying on the beach. A little boy is picking up the dying starfish and throwing them back into the water. The man can’t help but think that it’s a futile effort. So he asks the boy what he’s doing and what difference he thinks it can possibly make. The little boy looks up, tosses another starfish back in the ocean, and replies, “I bet it made a difference to that one!”
An amount of $75,000 in life insurance with a $152 annual premium is not much in the grand scheme of things. However, chances are that paying off the farm and home from the proceeds of that small life insurance policy would have made a big difference in the lives of that wife and three young children who were left unprotected.
If you have debt, we simply encourage you to sit down with your insurance specialist and evaluate your insurance coverage.
Tom Cox is the Senior Vice President of sales and marketing for Farm Credit Western Arkansas in Russellville, Ark.
