If you’re running a farm, you know that it requires special attention to detail and skill to get everything done on time and with excellence.
You also know that there are many risks that come with running this type of business, and you have to be prepared to deal with them when they arise. That’s why it’s so important to have the right farm insurance in place at all times, so you can stay focused on your business instead of worrying about your assets and liability issues.
How does farm insurance work?
Whether you’re a commercial farmer or are just growing vegetables in your backyard, you should know how farm insurance works. It’s important to have insurance for your farm or rural business. In fact, most farms require some form of coverage before they will even consider selling their goods.
Fortunately, there are many different types of insurance available that can protect you from virtually any risk you might face as a farmer. If you’re looking into getting farm insurance but aren’t sure where to start, here is an overview of what farm insurance covers and why it is so important for farmers everywhere.
First things first – what is covered by my Farm Policy?
To answer that question, we’re going to start with your policy language, because it tells you exactly what is covered under your policy. Your insurance company’s customer service representative can help you if you are confused about what is included in your coverage.
There will be exclusions in your policy (things not covered) as well as limitations (the maximum amount of money that will be paid out for certain situations).
Let’s go over a few of these policies and make sure we understand what we are paying for: Your farm buildings: Buildings include any permanent structures attached to land – barns, grain bins, storage buildings, equipment sheds etc.
Liability insurance provides protection against lawsuits filed by individuals or organizations who have been injured on your property.
Liability insurance isn’t always a given when dealing with property owners, but if you plan on having employees, customers or clients visit your farm or organize events there, having coverage is crucial. Liability covers third-party claims for bodily injury or property damage for which you may be held responsible.
It also provides coverage for defense costs (if a claim is made) and any legal costs incurred should you be sued. If you’re renting or leasing land from another owner, you’ll likely need to add liability coverage as an endorsement through your existing general liability policy in order to fully protect yourself while operating on someone else’s property.
Property Damage Coverage
Whether you’re talking about a multi-million dollar farm with hundreds of cattle or a small family farm, property damage insurance is an important way to protect your assets.
Consider that a single natural disaster, such as a bad storm or fire, could wipe out your entire operation—or at least cost you tens of thousands of dollars in repairs. The Federal Crop Insurance Program does cover some losses, but there are limits (including sales revenue caps) for individual farms.
Property damage coverage can help fill those gaps. The most common types of property insurance include: liability protection from lawsuits stemming from death or injury; personal property protection against theft and vandalism; workers compensation if an employee is injured on the job; and government-required environmental protections that are designed to protect consumers from tainted products.
Business Interruption Coverage
When you’re running a farm or a small business, unexpected interruptions can really throw off your operations. For example, if you’re unable to harvest your crops because of a storm or an accident, you may end up losing money on that crop—and on everything that came before. That’s why business interruption insurance is so valuable: It ensures that you aren’t out any cash if there’s an unexpected delay in production.
Crop Insurance Coverage
Crop insurance is a vital component of any farm business plan, allowing farmers to recover from loss or damage incurred due to weather events, pests or disease. When paired with other types of insurance, crop insurance can help manage risk for individual farm businesses.
Crop-insurance coverage may be purchased through your local USDA service center as well as private insurers such as AgriStability or Risk Management Agency (RMA).
Purchasing Additional Coverage
For most agricultural business operators, farm liability insurance is a must. As you consider your coverage needs, be sure to review all of your possible risks in light of potential worst-case scenarios. You might think that you don’t need additional coverage if everything on your farm is up-to-date with current technology—but you never know when something will happen beyond your control.
Agreed Value vs. Actual Cash Value coverage types – which one do I need?
An agreed value policy replaces a damaged or destroyed item with one of similar quality. It pays you at least what your property was worth at the time of loss (or purchase, if newer), minus any depreciation.
This is usually more than actual cash value coverage would payout. Actual cash value coverage only pays for current market value—what an item is worth right now—not its original cost or replacement cost.
If you buy a new tractor for $100,000 but then have it stolen five years later, an actual cash value policy would only pay out $20,000 (the current market price). An agreed-value policy would replace that same tractor with another brand-new one valued at $100,000.
Cost of Farm Insurance in 2022 – Are you overpaying for your coverage?
In 2017, farmers and ranchers across North America paid an average of $663 per year for all farm insurance protection (including personal liability coverage) — up 13% from five years earlier.
However, there’s evidence that many insured are paying too much. In fact, a comparison of Bureau of Labor Statistics Consumer Price Index (CPI) figures shows farm insurance costs rose at twice the rate of overall CPI between 2012 and 2017. This has led some state regulators to recommend that farmers shop around for better rates.
In Conclusion – How does farm insurance work, again?
Farm insurance is a confusing area for most people. Why does crop insurance cost more than your house insurance? What does rural business insurance cover, anyway? By simplifying what farm insurance actually is and how it works, you’ll be better prepared if anything should happen to your farm or ranch.
In reality, things will probably never happen to your farm; but regardless of whether they do or not, we hope that you’ll be better informed of what could happen thanks to our guide.