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Take Time to Review Your Life Insurance Policies


Here are some life insurance tips and traps presented at a recent conference that could be valuable to our readers:

  • Smokers/chewers pay roughly twice the premiums as a non-smoker.
  • If you were a smoker/chewer when you were issued your policy and have now quit for more than 365 days, you should have your policy reviewed to see if your premiums can be decreased.
  • Similarly if you were overweight when your policy was issued and have subsequently lost substantial weight you may be able to have your pre-miums reduced.
  • In order to deduct life insurance premiums, the insurance must have been a “requirement” of a lender for you to obtain business financing and proper documentation must be completed that assigns the life in-surance policy to the lending institution. If these conditions are not met and premiums have been deducted, the proceeds from the policy could become a taxable benefit
  • If a corporation is paying the premiums for a policy it must be the owner of the policy and the beneficiary of the policy as well. Otherwise policy proceeds could become taxable when removed from the corpo-ration.
  • Business Loan Insurance Protector (BLIP) plans offered by financial institutions including: Limited to $1,000,000; Not available past age 65: and Expire at age 70.

Working capital is determined from calculating the current assets less current liabilities on a balance sheet. It is effectively what you would be left with if you were to take all your assets on your balance sheet that are easily convertible into cash within one year and pay down the debts that are due within one year.

Working capital is just a number until you look at it in perspective of the operation as a whole. Todd suggested that determining the percentage that working capital is of the total farm annual expenses is a very good indicator of whether that number is adequate for each individual operation. His guideline is that working capital should cover at least 25% of the total annual expenses for an average farm, however an ex-panding operation will require more than that to be comfortable.

Inadequate working capital results in cash flow issues and often lead to poor agronomic and business decisions due to cash shortage. Increasing profitability, refinancing assets and selling of unnecessary or high-priced assets are means of improving working capital.