Farming families have circumstances that are different from those of non-farmers. Understanding and meeting these requirements is the basis of preparing a personal insurance approach that’s right for you.
In this article we consider insurance in the context of farming circumstances which includes how insurance can keep your farm working when you can’t, and how it can be an effective cornerstone in your succession plan.
We’ve often discussed insurance for your farming business, but personal insurance for you is equally, if not more important.
We take into account the year on year uncertainty which affects your farming business, including the weather, crop production and a myriad of other unpredictable factors. All of which can make it extremely difficult for farmers to qualify for, and afford, some insurances without expert guidance.
Among them, Income protection insurance, which generally pays a monthly payment over a nominated timeframe if you are unable to work due to sickness or injury.
In recent years there have been significant changes to Income Protection insurance. Agreed Value policies are no longer available, meaning that indemnity style policies are now the only option available.
Generally, an indemnity value policy will assess your income at the time of your claim to determine the amount you would receive as a successful claim. For farmers with earnings that can fluctuate between good seasons and bad, this needs to be taken into consideration.
We know that incomes can vary due to seasonal conditions. Careful consideration of the impact of making a claim during a good or bad season on your ability to be able to satisfy the cash flow needs you have, need to be factored into your risk strategy.
A potential alternative for farmers is Business Expense Insurance.
This type of policy provides a monthly benefit that can cover business operating expenses to an agreed level and is based on money expended by the business. It can also cover expenses such as interest on loans, equipment finance payments, wages, rates and other farming costs.
However, it doesn’t cover farm input costs such as sprays and fertilisers and it’s usually paid in arrears so you need to have some savings as a financial buffer until payment kicks in.
Trauma insurance is also worthwhile as it provides a financial benefit for funding medical procedures and recovery in the event of a serious illness such as stroke, heart attack and cancer. Generally, this type of policy provides a lump sum payment that is used to cover expenses which can include therapy, transport expenses, hiring a carer or home modification expenses.
Then there’s Total and Permanent Disability (TPD) Insurance. It generally pays a lump sum benefit in the event of an accident or illness which leaves you with a permanent disability that prevents you from working.
For farming families, Life Insurance can play a key role in succession planning. Should you pass away, the benefit may be used in full or in part, to payout non-farming beneficiaries, enabling a succeeding family member to take ownership of the farm.
There’s a well worn saying about insurance, that goes like this, “only insure what you can’t afford to lose.”
If you think about it like that, it makes prioritising pretty clear. If you can do without a rusty old ute, you don’t spend the money to insure it. You really can’t afford to lose your health, your livelihood or your life, so investing in personal insurance is an option for protecting your family and your business.
It’s also important to understand that insurance policies differ, sometimes dramatically, in both cost and in the definitions of the inclusions, or more’s the point, the exclusions.
Preparing a personal protection strategy blends a clear understanding of your specific needs including premium affordability AND a sound knowledge of reputable insurers who offer quality policies, clear definitions and have a strong claim reputation.
If you would like to discuss personal insurances and learn more about developing a personal protection strategy that’s right for you, please contact me today on 08 8253 2906 or email info@financialservicessa.com.au
Phillip Dibben is a financial adviser at Active Financial Management. Active Financial Management and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
Phillip Dibben is also an Authorised Credit Representative of Riverland Lending Services Pty Ltd, ABN 37 145 814 080 ACL 391825
This information does not consider your personal circumstances (including taxation) and is of a general nature only. You should not act on the information provided without first obtaining advice specific to your circumstances.