Life Insurance: The Farm's Most Overlooked Asset?

“The insurance model is this: collect premium, deny claim.” — Derryn Shrosbree, Farmstrong Financial

For many Canadian farmers, the word insurance triggers unpleasant thoughts and emotions.

Premiums paid year after year, claims disputed and the frustration of wondering whether the coverage was worth the cost. So when someone suggests life insurance as part of a farm succession plan, it's understandable why many farmers are reluctant to listen.

But what if life insurance could do more than provide a payout after death? What if it could help finance the farm today, protect its future and prevent the family disagreements that sometimes follow an inheritance?

That's the conversation Derryn Shrosbree of Farmstrong Financial and Bill Paddon of Grasslands Finance are encouraging farmers to have. And soon.

Speaking with Tracy Brunet, host of the Impact Farming podcast, Shrosbree acknowledges that farmers' negative experiences with property and casualty insurance have created a deep distrust of insurance products generally.

Life insurance, however, serves a different purpose. And certain policies offer financial opportunities many farmers may never have considered.

Traditionally, life insurance has been viewed as an expense competing with the immediate needs of the farm. For larger operations, premiums can run into hundreds of thousands of dollars.

Shrosbree describes the dilemma:

"In the past, farmers have had to choose between: do I buy a new header, or do I buy life insurance? Because the premiums can be $250,000 easily. So they have a choice: do we go farming or do we look after our continuity plan? Either or, I can't do both because resources are finite"

But a different approach to insurance financing is changing that calculation. There are innovative, stable, and productive approaches to the challenges farmers face.

Certain permanent life insurance policies accumulate what's known as cash surrender value. Unlike term insurance, which generally provides coverage for a specified period without accumulating cash value, these policies can build an asset over time.

That accumulated value can then be used as collateral for borrowing, potentially giving farmers access to capital while keeping their life insurance coverage in place.

For Brunet, herself a farmer and business owner, it was a revelation.

"You just moved it from a cost that I don't want to pay to an asset class."

Paddon explains that Grasslands Finance specializes in this asset-based lending approach. Unlike traditional lenders that assess a farm's operating cash flow and may require land, equipment or guarantees as security, Grasslands focuses on the life insurance policy's accumulated cash value.

Eligible farmers may be able to borrow up to 100% of that value, subject to the policy and financing terms, without providing additional collateral or personal or corporate guarantees.

"What it allows you as a farmer - is not to commingle this estate plan with your business operations."

A separate holding company may also be used to own the policy, creating further separation between the farm's daily business and the family's estate planning arrangements.

Borrowing still involves interest and repayment obligations, and the financial structure requires careful consideration. But the potential benefit is significant: farmers may be able to invest in machinery, improvements or other business needs without abandoning their long-term succession goals.

And those goals are often deeply personal.

Picture a family with five children. Three have dedicated their lives to working the farm, while two have built careers elsewhere. Mom and Dad want to provide fairly for everyone, but dividing the land and equipment into five equal portions could leave the farming children with an operation that simply cannot survive.

"Fair is not equal, and equal is not fair," Shrosbree explains.

Life insurance can provide an alternative through estate equalization. The death benefit can be directed toward off-farm children, while the land, equipment and other productive assets remain with those continuing the operation.

Done thoughtfully, it can help prevent the resentment and fractured relationships that arise when siblings feel their contributions or inheritance haven't been fairly recognized.

But even the best financial strategy cannot help a family that never gets around to planning.

"If you don't start, the potential outcomes and impacts to continuity of the farm and succession… are not going to turn out the way most founders, farmers want to see happen. They want harmony," Paddon cautions.

Starting earlier also provides more flexibility. Life insurance generally becomes more expensive with age, while accumulated cash values need time to grow.

"The most important things in life are generally not the fun things," Brunet observes.

Discussing mortality, money and inheritance may be uncomfortable. But those conversations can protect much more than the farm's financial future.

Imagine those same five siblings gathered around the Christmas dinner table years from now. The farm is thriving, everyone feels they've been treated fairly, and instead of lingering resentment, there's laughter, shared memories and gratitude.

That's what thoughtful succession planning can help preserve.

Because the most valuable inheritance isn't always the land or the money. Sometimes, it's knowing the family still wants to come home.