Owning a farm can truly be a family affair and this can span for many generations. There will surely be happy and tough times. The road to each harvest season comes it’s ups and downs. And with it many headaches when things bog down or need replacement. We take a look into what it really takes to get your farm the coverage it needs when times are hard.
Farm Policy 101
A farm insurance policy is a combination of a standard coverage offered by personal homeowners insurance with commercial property and liability coverage. Therefore, if you have a separate house aside from your farm business; think of the coverage of a standard homeowner’s insurance and how it works. This way you will have a quick grasp on what a farm policy is. But this time it will be with the combination of commercial property and liability coverage since farming is a business.
The benefit of having a farm policy is that it can be customized based on the needs of the insured. This policy is a type of insurance tailored to cover farm operations and its owners. It is a good risk management strategy and is highly recommended to help mitigate perils caused by farming activities. The policy can protect owners from losses caused by:
- Natural calamities like hail, storm, flood, thunder, lightning, snow and fire
- Theft and vandalism
- Pipe bursts and electrical surges
- Death of a livestock
- Loss of crops
- Bodily injuries and medical expenses
Farming is more than a hobby. It is a combination of passion, skill, and determination. It is one of the riskiest businesses. In fact, farm owners face more challenges daily than regular business owners. Unforeseeable circumstances can occur when running a farm. To prevent losses, it is vital to know the options to protect your investment through the Farm Policy.
What is the coverage of a farm policy?
Since farm operations are technical; the coverage of the farm policy is vast enough to protect all aspects. This is a combination of Homeowners Policies, Motorized Vehicle Policies, and Agricultural Policies.
Most insurance companies factor in operational costs and overhead expenses. Getting a customized farm policy is more practical as the cost is lower than buying individual policies that could cover each risk.
In general, there are 3 types of Farm Policy to cater to the needs of a specific area. These are Property, Asset, and Liability.
This is the most common type of insurance. It is not only applicable to farm businesses but also for everyone who owns any kind of personal property. It primarily covers structures or buildings situated at the farm. The two common methods to calculate the value of a damaged property are Actual Cash Value and Replacement Cost Value.
The Actual Cost Value is the cost to replace a property minus its depreciated price. For example, The value of your property five years ago was $5million. However, since some parts of the farm are no longer in good condition; your property’s actual cash value depreciated to $3.5million.
Being said, if in any case that your farm got burned to the ground and it needs to be built again; your insurance provider will just give you $3.5million which is the current value of your property. If that amount wasn’t enough to fully built your farm the same as before; the remaining amount needed to finish the farm will be shouldered by you.
On the other hand, a Replacement Cost Value is a cost to replace property without deducting the depreciated price. Meaning, no matter how low the current value of your farm is when you file a claim, it doesn’t matter. You will still get the same amount of money when you bought your property. Under the property insurance, there are three sub-policies:
A type of insurance that covers the home structure, including permanently attached fixtures and appliances but does not include furnishings or land. Most farmers use the Replacement Cost Value to compute costs needed to rebuild their homes in the event of a total loss. It takes into consideration the features and characteristics of a home to determine its value. Calculating your property’s correct value can be tricky. Hence, here are the things that you should do to properly determine its value:
- You must know the period of construction, is it Victorian, Federation or Contemporary.
- The materials that were used to build the house, was its cement, tiles, wood, or brick. Also, make sure to indicate the quality or prestige.
- The features of the house like a balcony, garage, heating, and air-conditioning system and security system.
- Declare all the changes that were made. Renovations of anything must be considered. For example, you change your kitchen’s counter from woods to tiles.
These details can make you easily determine the right cost value of your dwelling. Homes should be insured within 80 to 100 percent of its reconstruction value. According to the National Association of Home Builders, the average cost to build a house in 2020 is $100 to $150 per square foot.
Barn or Outbuildings
This insurance protects outdoor structures unattached to your farmhouses such as stables, barns, sheds, or silos. The condition of the structure will matter when deciding whether to cover or not. If the building is not worth replacing, insurers may refuse to cover it. Like the farm dwelling policy, it is best to consider the replacement cost than the actual value of the structure.
Farm equipment and machinery
This protects the owner from financial losses caused by damaged equipment or machines. Most property contents aren’t covered by the farm policy automatically. You should include the equipment manually on the insurance reports. Among the equipment covered are tractors, rotavator, agricultural rakes, planters, plows, harrows, and all the other farm equipment. Farm equipment are expensive thus, getting it insured is important to mitigate losses. On average, it costs $2000 – $4000 to ensure a tractor-trailer a year.
A farm is incomplete without its assets, the crop, and livestock. The asset insurance covers losses caused by the death of livestock or damaged crops. In farming, this is where most producers spend time the most. Efforts are done to raise cattle and ensure it produces meat or dairy that farmers can sell. At the same time, crops are also a farmer’s source of income. Hail is known to destroy a significant area of a planted field thus, policies are in place to protect the farmer from losses.
This insurance provides coverage for the death of your cattle, dairy, swine, and lamb animals caused by natural calamities, accidents, or necessary destruction. The coverage is classified as individual or herd. Individual coverage allows you to list the animals separately. This is best if you have a farm with high-value animals. Herd insurance covers a large group of animals. The coverage will depend on the percentage of the animal’s cash value or sales price. When acquiring a new animal, the owner should report it within the policy timeline, normally 30 days, for the insurance to cover it. If an animal passes away, you can apply for full mortality coverage by presenting a medical certificate issued by a veterinarian. The mortality coverage doesn’t include pre-existing conditions or death caused by the owner.
This insurance covers the loss of crops caused by the risk factors mentioned above. There are two types of crop insurance namely, Multi-Peril and Crop-Hail. Multi-Peril insurance protects the producers from perils caused by hail, drought, fire, flood, snow, insects, and wildlife. It also covers loss of revenue due to price decline. The Crop Hail insurance protects the owners from damages caused by hail. For damaged crops, it is important to report it to your agent within 72 hours of discovery. Under-reporting and over-reporting planted acreage per unit are the common mistakes an owner makes on crop insurance reports. These mistakes lead to paying high premiums while getting low indemnity payments.
Farm Liability insurance is not optional, and owners should avail one due to the number of risks involved in a farm business. If the owner was found to be legally liable for the injuries, the liability policy can protect him from possible lawsuits. Accidents and injuries must occur within the coverage timeline of the insurance policy otherwise, the insurance company will not be responsible for the costs. The insurance premium will depend on the degree of risk and amount of coverage desired.
This covers the owner in cases where accidents or bodily injuries occur to visitors or workers at the farm. The Farm Liability insurance is not a replacement for the Worker’s Compensation insurance and can only cover farming activities.
Worker’s Compensation Insurance
This insurance provides comprehensive benefits such as wage replacement or medical coverage to employees in the event of them getting injured during employment. Like General Liability, this can also protect a farm owner from lawsuits due to negligence. The insurance premium will be based on the type of business, employee workload, and an annual paycheck. Some insurance companies do not cover start-up businesses due to a lack of experience in employing people. As an employer, it is best to visit the guidelines of the Worker’s Compensation insurance to ensure it meets your employees’ needs.
What are the farm policy exclusions?
Despite the extensive coverage of the farm policy, there are some exemptions that farm owners may need to take note of such as:
- The Farm Liability insurance will not cover bodily injuries caused by a family member at the farm. This is to prevent a member of the family from reaping benefits from the insurance paid by the farm owner.
- The Farm Policy may not cover most pre-existing conditions, whether of a person, animal, or equipment.
- Unlike in the Homeowners’ Policy, fencing is not covered on the Farm Policy. Despite this, most owners choose to not insure it separately as it is costly and doesn’t affect farm operations. Also, there’s no standard requirement for fencing a farm thus, it is rarely included in farm policies.
- Negligence caused by the owner such as failing to maintain farm equipment may not be covered by the Farm Policy. Technical malfunctions may also not be covered due to its complexities.
How to insure my farm?
Now that you know more about the Farm Policy, let’s talk about how you can get started on protecting your farm. Different insurance companies offer different farm policies. Since each farm is distinctive based on structure, it is best to contact a trusted insurance agent to visit your property and conduct assessments.
The agents will consider all aspects of your farm to ensure full coverage. They can help address your concerns and queries about the policy. When scheduling an agent visit, it is important that you are well-equipped with the information they need.
Be ready for questions about your business model, gross annual farming receipts, lists of enterprises, and formal safety measures. In return, you can ask your agents about farm liability limits, insurance deductibles, and policy exclusions. Many insurance policies are written using Replacement Cost Value. It means that during damages, the value of the insured item will be the cost to replace it.
In a nutshell, farming is not an easy business. It is an investment of both time and money. The last thing that you want to happen as a farm owner is to be left empty-handed. When customizing your farm policy, it is best to ask yourself, “Given my chosen policies, will my business recover after suffering major losses?”
Securing your farm through the Farm Insurance Policy can help safeguard you and your investment. There are several options to choose from in order for you to come up with a tailored and comprehensive insurance. It can get overwhelming thus, it is best to consult an expert to be guided accordingly.
Call us today and we’ll help you find the best farm insurance in Denver, Colorado, or whichever agricultural state you’re in.