We all know that insurance is an important part of a risk management plan. Most farmers have liability insurance for accidents, casualty insurance for fires and other disasters, crop insurance for poor yields, health insurance for illness and even life insurance for death. There is another type of insurance that farmers often overlook.

According to the National Agricultural Statistics Service, in 2009 there were 42,000 total injuries sustained by farmers and farm workers in the U.S. (more recent data is not available). It is common knowledge that farming is one of the most dangerous activities. Like other risks a farm faces, there is insurance than can help manage this risk — disability insurance.

Disability insurance provides income to you should you become injured or unable to perform the tasks needed to operate your farm. Like any type of insurance, there are many different options. A policy can be for a limited amount of time or last many years. Short-term policies typically replace 60% to 70% of base income, whereas long-term policies replace a bit less at 40% to 60%. Short-term policies are meant to cover short-term injuries or illness, while long-term policies end when the disability ends, after multiple years or when social security age is attained. The waiting period before receiving benefits is often a few weeks for a short-term policy; a long-term policy will have longer waiting periods of several months.

The cost for disability insurance depends on your age, gender and health conditions. Obviously, the younger you are the less costly the insurance. Also, if multiple policies are purchased by multiple family members or for employees, a discount on the premiums is often applied. Be sure to shop around for the best price for the policy you need.

Disability insurance policies are typically designed to replace only some portion of the applicant’s income upon disability. This does not always work the best for farms as income is often kept intentionally low for income tax management. Farmers should consider looking into a disability policy for farmers that may be based on the size of the operation rather than annual income.

The income you receive from a disability insurance policy is generally not subject to income tax. This is one reason that many policies are based upon 60% to 70% of actual income, without tax this lower amount is still equivalent to income subject to income taxes. One exception could be the policy paid for, in part or in full, by an employer. The reason disability insurance proceeds are generally not subject to income tax is because premiums are paid with after-tax dollars. That is, disability insurance premiums are not an expense to offset income. Be sure to consult a tax professional to determine the income tax implications to your situation.

You can obtain disability insurance from most insurance brokers. Check with your insurance agent and/or financial adviser for their recommendations and what products might be available to you. Like any type of insurance, it’s too late to get it after you find out you need it. Consider adding disability insurance to your risk management portfolio.

Moore is an attorney with Wright & Moore Law Co. LPF. Email him at [email protected], or call 740-990-0750.