Life insurance for farmers - How much is enough

17 April 2012

Gary O'Sullivan, Principal of Blueleaf Consulting a specialist insurance brokerage firm, writes below about life insurance for farmers and discusses the factors farmers and farming families should consider when determining the level of cover required and the options available.

It is generally recommended that individuals with debt and financial dependants should have sufficient life insurance cover to ensure that in the event of passing (a) all liabilities are extinguished (thus leaving the family home debt free) and (b) a sufficient capital sum becomes available to fund an ongoing income stream for the family. 

The latter figure would generally depend upon how much income is required, how long it is required and would take into account any other assets that are likely to become available in order to generate an income stream. 

The situation with farmers however can be somewhat different where there may be significant property holdings.

It is important to consider that whilst many people only think of death cover there are a range of products available in the market that will provide benefits in the event of temporary or total disablement or a capital benefit upon diagnosis of a serious illness or injury e.g. heart attack, stroke, cancer etc. 

Before we look at the requirements for farming families it’s worthwhile looking at the product range and how identifying different benefits may be applied. 

Income Protection This type of cover will pay you a monthly benefit whilst disabled if you are unable to work due to sickness or injury. You can normally cover up to 75% of income after expenses (based on previous 12 months' financial history) however certain limitations may apply if you have had an adverse year(s) for example, drought. 
Term Life (Death Cover)

Provides a capital payment in the event of death, which can be used for:

  • Loan repayment and/or debt reduction
  • Capital to fund an income stream for the family
Total and Permanent Disablement

Provides a capital benefit in the event of an accident or illness which prevents you from ever working again at your own or any other occupation you are suited by way of training, education or experience (policy wordings may differ). This benefit can be used for:

  • Loan repayment and/or debt reduction
  • Capital to fund an income stream for family (if income protection cover is not available or has a limited benefit period)
  • Medical expenses
Critical Illness (also known as Trauma Cover)

Provides a capital benefit upon diagnosis of a specified serious illness or injury, for example heart attack, stroke, cancer etc. This benefit can be used for:

  • Debt reduction or funding of interest on loans
  • Medical expenses
  • Short term funding for a carer

Generally speaking most farming famillies should consider a combination of the above products to ensure they are adequately protected. The level and type of cover will depend upon a number of factors, namely:

What are the farm assets and would you be willing to sell them in the event of death or disablement? 

It is not uncommon that there is significant emotional attachment to the farm and a desire to maintain it for future generations. In our experience many farming families will want to hold onto the farm and in the event of death or disablement would be very reluctant to sell it. Given the farm offers income generating opportunities and potential capital appreciation, a more palatable option would be to reduce and/or eliminate the farm debt in the event of the death or permanent disablement of the farmer.

Another area that is often overlooked is the loss of a spouse and the impact on the farming family.

A spouse normally makes a significant contribution to the household either by contributing on farm (unpaid duties) or by supplementing household income by working off-farm. The loss of services can have a significant impact on the farming family particularly where there are young children involved. The costs of these unpaid services are quite often underestimated. Consideration should be given to a reasonable level of "spouse cover" to cater for this situation.

So what's the appropriate level of cover?

The answer to this question will primarily depend on what the family would like to occur in the event of death, disablement or serious illness. Would you be willing to sell the farm and move to the city or near town and utilise capital from the farm sale to generate ongoing income? Would there be sufficient income available from the sale of the farm assets to purchase a home and to provide an ongoing income stream for the family?

Income Protection
  • Maximum benefit available, benefit period to age 65 (if available), if not:
  • A two year benefit period and additional TPD cover
  • (If employed off-farm)
    Maximum benefit available, benefit period to age 65 (if available), if not:*
  • Consider TPD top-up cover

*(Many insurers will not offer income protection cover to spouses on farm unless they can establish full-time duties relating to income generation on farm).

Term Life (Death) Cover
  • Sufficient cover to repay debts
  • Capital to fund an ongoing income stream (if required)
  • Either sufficient cover to repay a portion of debt, or:
  • Sufficient cover to generate an income stream until young children are financially independent
TPD Cover
  • Sufficient cover to repay debts (or a portion thereof)
  • Capital to fund an ongoing income stream (if required)
  • Medical expenses

If income protection is not available:

  • Sufficient cover to repay a portion of debt, or:
  • Sufficient cover to generate an income stream until young children are financially independent, or:
  • Sufficient cover to fund the costs of a full-time carer and/or medical expenses
Critical Illness Cover
  • Cover to reduce debt or to pay a number of years interest on a debt
  • Sufficient cover to pay for additional medical expenses
  • Debt reduction or interest repayments
  • Sufficient cover to pay for additional medical expenses and or costs of a carer

If there are no significant farm assets then consideration should also be given to providing the remaining family members with sufficient funds to purchase a home as well as a capital amount to fund the ongoing income requirements of the family.


Unfortunately there is no "one size fits all" solution. Each family circumstance will differ and therefore requires individual consideration. Fundamentally an appropriate structured risk insurance program should provide you with a guaranteed outcome and flexibility and should assist you to avoid a "fire-sale" of farm assets.

The structure of insurance arrangements may also involve family trust and/or superannuation and another consideration may be the use of insurance for the purposes of estate equalisation.

Note, this article is for general information only and does not consider the general insurance requirements of farmers and farming businesses.We would suggest you speak with your Boyce Financial Advisor to determine what type(s) of insurance and levels of cover are most appropriate for your own situation.

Gary O'Sullivan
Principal - Blueleaf Consulting

This article is brought to you by Boyce Financial Services the financial advisory division of Boyce Chartered Accountants.

Boyce Financial Services Pty Limited is an Authorised Representative of Lonsdale Financial Group Limited, ABN 76 006 637 225, AFS Licence No. 246934.



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