Life insurance is a way to increase an estate’s value just by paying a monthly premium. In the case of a farm, the life insurance can be taken out by the parent, or by a child on the life of a parent. This can help alleviate complications that can arise if certain children wish to take over the farm and others do not, but the parents do not want the non-farming children to be left without anything upon the parents’ death.
Life insurance can also be used for a specific purpose, such as costs associated with death or the payment of a mortgage and other liabilities of the farm. Like trusts, which were discussed as an estate planning tool last week, life insurance proceeds do not have to go through the probate process. One more advantage of life insurance is that the money derived from it is not considered gross income on your tax return; however, keep in mind that life insurance is estate taxable and should be considered if this is an issue for your farm or agri-business.