Farmers have an incredible responsibility to feed our great nation. This responsibility comes with several challenges, some of which are beyond the farmer’s control. Farm insurance helps to make sure these challenges do not turn into devastation. Critical insurance aspects need to be looked at each year by the farmer to ensure a natural disaster, insurance claim loss, or a bad crop yield does not wreck havoc on the farm.
Farming is a tough business! Farmers continue to work their tails off only to take it on the chins time and time again. Crop prices continue to remain low. Input costs remain high. Land prices continue to creep up and foreign tariffs come in to play. Not to mention the stress that goes along with the unpredictable weather every single day of the growing season! These hardworking men, women, and children need to be thanked. They go through an emotional roller coaster every year just to put food on our table!
Whether you are farming your granddads 80-acre piece of land or 10,000 acres of rented ground, there are certain insurance coverages that need to be in place for proper risk management. Let’s briefly look at some of these options:
1. Farm House
The mainstay of the entire family where home meals are prepared, where kids and grandkids play, homework assignments are completed and basic responsibilities are learned. Make sure you have enough coverage in place to rebuild your square footage. No money should come out of your pocket for a rebuild.
2. Farm Buildings
This includes the machine shed, tool shops, grain bins, grain legs, grain dryers, garage and livestock barns. Farm buildings come in all sorts of shapes and sizes. Make sure you have adequate coverage to keep you from taking a financial loss if there is a total structure loss. Let’s take an example.
- What would happen if you lost your entire herd from damage to the livestock building? You would want to have coverage on the herd and the loss of business income from not being able to sell the livestock, milk, or consumable good.
3. Farm Equipment
Farm equipment makes it possible for farmers to complete the tasks at hand. Typical equipment on the farm could include tractors, a combine, a spray coupe, implements and tools. The basic farm policies cover weather related losses, collisions, theft, and vandalism.
- What if you encounter a large rock with the combine or haybine? It would be a good idea to add intake of foreign objects to the policy, which would also cover the cost of renting a replacement machine. When crops are fit, this replacement coverage would help to avoid downtime when time is of the essence.
- What if a raccoon takes a nap in your brand new combine? You start it up in the spring to check everything and run that 30 pound animal through the belt system causing thousands in damages? [True story from a real client.] This would require “special” form coverage on your farm equipment.
All policies are not the same. Make sure you know what is in your policy with help from your insurance professional.
4. Farm Liability
Coverage here protects against any farm or personal liability legal action brought against the operation or individual. Examples include the following:
- Farm equipment collision with vehicle
- Farm animals getting out of the barn and ending up in the road
- Spray drift (pollution liability)
- Animal cruelty accusations
Make sure your limits are adequate. Base farm policies can include up to $1 million in coverage. Additionally, a farm umbrella can be purchased up to $10-20 million depending on the size of the operation. This will help to fill the gap and properly cover larger operations. Pollution liability needs to be endorsed on a standard farm plan. If you have the exposure, make sure you have the conversation with your agent, because limitations apply.
5. Workers’ Compensation
If you have farm employees, you need to carry a workers’ compensation plan. This will cover your operation if an employee is hurt while on the job. You will also need to add a stop-gap liability endorsement to your standard farm insurance plan to limit your out of pocket expense for Workers’ Compensation losses.
6. Crop Insurance
As a row crop farmer, this is one of the most important options you can purchase. Crops are your main source of income for the entire year. How do you get through if yields are not sufficient? There are various plans that can be purchased to guarantee a certain percentage of your yields and therefore, annual income. These plans are also subsidized by the federal government, which helps with the pricing. Multiple peril crop insurance (MPCI) are the most popular options. Make sure if a natural disaster hits you are properly leveraged here.
If you are a livestock producer, a grower, or you are just doing it for personal consumption, keep in mind there are some things you need to consider. The standard farm policy covers against weather related loss, fire, vandalism, and some other basic coverages. The second option is to purchase livestock mortality insurance to cover against accidental poisoning by water or feed, disease, hypothermia, or suffocation. If you are a swine grower (or a livestock grower in general), you need to make sure you have the care, custody, and control endorsement on your livestock mortality insurance policy. Coverage here is if you are negligent and cause a mortality event to the livestock. [Stay tuned for more details in a future blog focused on livestock!]
8. Business Income
A brief review was mentioned under the farm buildings section, but let’s dig in a little deeper.
- If you operate a dairy and could not milk the 1000 head of cows, what type of revenue would you be missing if you were out of operation for 6 months?
Business income also includes a coverage titled “Extra Expense.” We will continue with the dairy example. Unfortunately, your milking parlor blew down in a wind event and was unusable. Thankfully, half of the cows survived the weather unharmed. Now, the cows will quickly need transported to another milking facility or you will need to arrange for a portable milking setup. What would this “Extra Expense” cost? The intent is to pay all of those additional expenses and loss of income without having to dip into the savings account or worse yet, to obtain a line of credit for this loss.
There is no surprise if you have not heard of this available coverage. It is rarely discussed. However, it is a VERY important piece of risk management for the farm.
There are 3 different classifications for vehicles:
- Personal vehicles are for private passengers and not used for farming purposes.
- Farm vehicles are used to haul your own commodities with no charge for hire.
- Commercial vehicles are used for hire. These can be used for grain hauling for others or hauling commercial loads.
Make sure your exposure is clearly understood by your insurance carrier or there could be serious consequences. If you are hauling commercially and the carrier thinks it is for farm use, there is a strong chance a claim denial would be sent, leaving you to pay for damages and injuries out of your pocket.
10. Life Insurance
Farmers may have heard this called legacy planning. You can simply transfer risk on a life insurance policy. A large sum of life insurance can be purchased for a small premium. This allows for legacy operations to continue long into the future. Buy-Sell agreements and land transfers can all be triggered and funded by life insurance.
11. Long Term Care
The cost of a nursing home can be unnerving if proper planning has not been considered. A long term care policy protects you from losing the farm when it comes time for care at a nursing home or assisted living facility. Monthly fees can be extremely expensive costing $2500 to $5000 per month. A savings account can quickly be wiped away at this rate.
Instead, consider a long term care policy that can be paid up with a single payment, in 5 years or in 10 years. A predetermined monthly amount is available to be used toward your long term care expenses. A life insurance benefit is built in, too! Not to mention, the cash value of the policy stays at what you have paid into it! You owe it to yourself and the legacy you have created on the farm to properly plan here!
Owning a farm is a complex business, as you well know. Proper insurance coverage is multidimensional and requires a yearly review. The insurance professionals at our independent agency have experience helping farmers. They are also involved with farming personally. We are very proud to serve the agriculture community! We will lace up our boots and get our hands dirty for you. If you have not worked with an independent agency before, learn more about it here!