Your Farm Insurance Policy

A Farm Insurance policy can provide coverage for dwellings and personal property, farm buildings, produce, livestock, machinery and equipment, and liability. Coverage for motor vehicles is provided under an Automobile Insurance policy.

Types of Coverage

Companies offer two basic insurance options (levels of protection): Named Perils and Broad Form.

Named Perils is the most common. The causes of loss that the insurance company will cover are listed in your insurance policy. The named perils may vary between different sections of the policy such as building and livestock. Also, there may be exclusions or limitations built into some perils.

Broad Form sometimes called "All Risk". The premium is higher but all direct damage to insured property is covered unless either the property or the cause of loss (peril) is excluded.

Additional Coverage - Endorsements

If you are concerned about a risk that is not protected on the standard policy you may be able to purchase coverage with an endorsement. An example would be a building collapse from snow or ice. If the building is built and maintained to current standards, then the insurance company may offer collapse endorsement. Older buildings generally do not qualify.

Other examples of endorsements include: income replacement, power interruption, pollution, clean up on own farm, custom work, high value livestock and consequential loss.

Determining the Values (Limits) to Insure

It is important to determine the right values to insure for as it affects the financial risk you are taking. In some areas of coverage (see Coinsurance) you are required to insure a minimum percentage of actual value.

Property is insured either as Actual Cash Value or Replacement Cost. An Actual Cash Value means that any settlement at the time of the loss is going to be based on the depreciated value of the property. Replacement Cost means that any settlement at the time of loss will look to repair the item if possible or replace it with a new article of similar quality and ability. Another option is Guaranteed Replacement Cost which means as long as your buildings are insured to 100% of the calculated cost to replace them, you will not be restricted to the limit on your policy. Not all buildings will qualify.

Limitations on Insurance Settlements

Deductibles

Most sections of a Farm Business Insurance policy have deductible amounts - the portion the insured has to pay before insurance benefits are provided. Deductibles help keep catastrophic coverage at reasonable rates because minor claims are looked after by the insured. It is common to have $1,000 to $2,500 or higher deductible levels on farm buildings.

Different levels of deductible can apply to each type of asset: probably less on a house, perhaps one animal's value for livestock, $500 for machinery. It is a matter of achieving adequate coverage at reasonable costs. Your risk management strategy will come into play. This applies to both the levels of deductible you can afford and settlement values you need.

Coinsurance

If you fail to keep your values current, you may be subject to a coinsurance penalty when you have a loss.

Your farm insurance policy usually has a coinsurance clause. This means that if you fail to carry an amount of insurance on the insured property (buildings, livestock, machinery, produce etc.) that equals a specified percentage (80%, 90% or 100%) of the true cost of replacement, you will have to pay part of a claim for that item. For example if the cost to replace your herd is $100,000 an 80% coinsurance clause requires that your insurance limit for that herd be at least $80,000. If you choose to insure the herd for $60,000 (75% of the required minimum of $80,000) you will receive only 75% of the value that the destroyed animal is worth. The decision to insure at a limit less is your own risk management decision.