Farm Insurance: Coverage, Options and Exclusions
Farm Insurance: Coverage, Options and Exclusions
Farm and ranch insurance is a hybrid form of coverage meant to protect you both personally and commercially. Like a standard homeowners insurance policy, farm insurance covers your home, possessions and personal liability. Beyond that, it also includes coverage for your machinery and livestock — though not for your crops.
What is farm and ranch insurance?
Farm and ranch insurance is usually a highly customized policy. You start with basic, bare-bones coverage, then tack on additional options based on the needs of your home and business. Because each farm or ranch is unique, an agent often conducts a site visit to make sure your property is fully covered.
The amount of customization available is fairly detailed. For example, Nationwide’s Agribusiness farm insurance allows policyholders to pick and choose coverage for 12 different categories of perils. You can also opt for broader coverage, which includes many of the same expanded coverages in most types of homeowners insurance policies. Some examples include falling objects, burst heat or water pipes, weight of ice and snow, and power surges.
Detached garages and other buildings that would be covered by a standard homeowners policy remain covered by this portion of the policy as well, along with plants, trees, shrubs and your lawn. It will not cover anything grown for commercial use and usually only includes covered items within a certain distance of the home.
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For example, say you have a farm insurance policy and only 100 feet of lawn separates your home from a field of alfalfa that is baled and sold each year. Even though it is close to the home, that alfalfa would not fall under this portion of the farm insurance policy. You'd have to get separate crop coverage.
Like standard home insurance policies, there also are claim limits for trees, shrubs and your lawn. Depending on the individual policy, there might be a claim limit per tree or shrub, or there might be an overall limit set according to a percentage of the coverage of the home.
For example, your policy might cover each tree or shrub up to $250, or you might be covered up to 5% of the coverage of your home. In that case, if you have $100,000 of coverage for your home, that would mean the overall limit for trees, shrubs and your lawn would be $5,000.
What does a farm insurance policy cover?
Farm and ranch insurance also covers personal property directly related to the farming or ranch operation. This portion of the coverage can typically be broken down into three categories: farm machinery and equipment; livestock; and farm products such as seed, silage, animal feed, fertilizers and pesticides.
Most farm insurance policies allow policyholders to choose broad coverages over the categories or to schedule individual items. These options work similarly to endorsements and floaters. You choose which is best for you when you speak to your agent and purchase the policy.
Whether you choose to broadly cover categories or individually schedule items, we’ve broken down coverages under this portion of a farm insurance policy.
Farm machinery and equipment
This coverage protects the policyholder from financial loss or damage of their machinery and equipment due to covered perils. Almost everything you might guess that falls under this category is covered. Tractors, combines, cotton pickers, planters, field equipment, hay rakers and other machinery are all covered.
If you use a truck for farm work, you may be able to bundle a commercial auto insurance policy and add it to your overall farm insurance package. Portable irrigation equipment and portable structures and fences are usually covered as well.
Farm and ranch machinery is expensive, and some of it may need to be scheduled. Farm tractors can cost more than $200,000, but they are necessary investments for many farmers. As durable as they are, a lot can happen to them. For example, say a tornado damages a tractor. There is little the owner can do to prevent that peril, so they need to protect themselves financially against the loss of such an expensive piece of equipment with farm insurance.
Example of cost: We've seen most farm equipment get insured for roughly $15 per $1,000 of value, but this will depend on your deductible. For example, say you have a tractor valued at $200,000. It would cost roughly $3,000 per year to insure it against a group of named perils. If a covered peril impacts your tractor, you'd get the proceeds net of the deductible you choose.
Most farm insurance policies offer broad coverage of livestock in the event they are killed or injured as a result of a covered peril. There are also extensions that cover a much wider array of perils that can happen to farm animals. Some of the extended policies cover things such as the death of animals by accidental shooting, or if they are struck by a train or vehicle. They also might cover attacks on livestock by dogs and wild animals, as well as flood and earthquake loss of livestock.
Horses and equine animals are unique because of the variety of purposes they serve. Whether you use one or more horses for work, breeding, show or pleasure, the animals are investments for which it makes financial sense to purchase insurance. Companies that offer farm and ranch insurance employ special adjusters specifically for equine animals and offer a list of options to cover them. Choosing what protection is most appropriate is a decision you'll make with your agent.
Typical coverage options for horses include animal mortality coverage, which covers death due to a broad number of perils and theft. Perhaps more importantly, the option also covers death due to sickness and disease. This is a unique covered peril that standard livestock portions of farm insurance policies do not cover. Other livestock options for horses include major medical expenses, surgical expenses and loss of use coverages.
The purpose the horse serves the policyholder determines which of the options you need to purchase. For example, say you ride your horse to herd other animals. That horse is probably a vital part of your livelihood, so you need to protect that asset with insurance in the event of perils, accidents and disease. A horse you have purely to ride for pleasure might not require extensive coverage.
Example of cost: The cost of equine or horse options depend on many factors, including the type and age of the horse, where it resides and what tasks it performs. Generally, mortality coverage costs 2.5% to 5% of the value of the horse. So if you have a horse worth $10,000 and a rate of 5%, the mortality coverage alone might cost the policyholder $500 per year. As we mentioned earlier, there are adjusters who specialize in evaluating equine options, as there are a multitude of variables to account for when determining insurance coverage.
Feed, grain, seed and similar items considered farm products are covered by farm insurance. Remember, these products are only covered while stored. Feed, grain or other crops growing on the property and seed that has been planted are not covered. Those would typically require a commercial insurance policy if the sale proceeds exceed your policy's incidental income limit.
Farm liability coverage
Similar to a standard home insurance policy, farm and ranch insurance also provides liability protection. Liability coverage is not an option and is part of every farm insurance policy because of the risks at hand. It covers bodily injury, medical expenses and property damage if necessary. Perhaps just as importantly, it covers attorney’s fees associated with covered incidents as well.
Even under the most careful precautions, accidents can occur. Farmers with years of experience operating machinery can misstep and hurt themselves. Something could startle an animal and cause it to injure a handler. Or, say an animal manages to escape, wander into a roadway and cause an accident. Even though that incident didn’t occur on your property, you, as the animal’s owner, would be liable.
What isn't covered by farm insurance?
Be careful when it comes to insuring your farm. There are a few items that you may think would be automatically included, but are likely not covered by your policy. In particular, there are a couple of nuances around fencing and fires that homeowners should keep in mind regarding their coverage.
Fencing not automatically included in farm insurance
Fencing is rarely covered by standard farm insurance policies. This might seem counterintuitive in terms of needs — many farms have a lot of fencing — but that’s exactly why standard farm policies don’t cover it. Some farms might not have any fencing, while others might have miles of fencing. There are many different types of fencing, too, which could impact the cost to insure it. For example, a quarter of a mile of woven wire fence costs roughly $2,600, while a barbed wire fence costs $1,900.
For all of the above reasons, the decision to cover fencing is one insurance companies let the policyholder make in the form of a policy extension. For a farm or ranch insurance policy to broadly cover fencing would mean factoring in a risk many policyholders aren’t subject to — even though it would be reflected in the form of a more expensive premium.
Many people choose not to insure their fencing. The only thing that might destroy a significant portion or all of a fence is a tornado. However, electric gates can cost $15,000 or more. If you have electric gates, you should definitely consider the gates' importance and whether you need to insure them.
Note on covered perils in farm insurance policies
Farm machinery and equipment is only protected by perils explicitly listed in your policy. Equipment that is not well maintained won't be covered, and technical malfunctions are not covered. Like many things, farm equipment is getting increasingly technically advanced, and unless you purchase a specific extension, it might not be covered.
Policyholders need to be certain that their home and other buildings are covered in the event of a fire. Although farms are generally insured against fires, some things might activate an exclusion. For example, road accessibility to farm structures is something your agent will note. Some carriers require paved or solid gravel roads leading to buildings covered by the policy.
Regarding water sources, some people assume a pond on the property is adequate, but fire truck hoses need to be able to reach both the pond and covered structures if a hydrant is not available. In dry conditions, a fire truck would likely deviate from a road or gravel, but if a field is covered in snow or too muddy, it might not. A lack of clear roads to your barn or stable would increase your risk of sustaining damage in a fire, which may result in insurers excluding fire as a covered peril on your policy.
Should you get farm or ranch insurance?
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In order to figure out whether farm or ranch insurance is right for you, we suggest you consider three factors that can impact your insurance needs:
- Additional structures
- Income-earning livestock
Structures: If you have secondary structures on your land, such as a barn or stable, then you likely need a farm insurance policy. Most buildings that are used for an agricultural function need specific coverage from a farm policy. This can apply to buildings that you have repurposed for agricultural use. For instance, an old garage converted into a greenhouse would require farm insurance.
Livestock: If you keep animals that you rely on to generate significant income, then a standard home insurance policy may not provide enough "incidental income" coverage to protect your interest in those animals. Consider the difference between keeping a few hens in your backyard and caring for cows at a dairy farm. Farm insurance is designed to protect livestock in the latter case.
Employees: If anyone works for you on the property, you'll need farm insurance that provides coverage for potential liability situations and workers compensation claims. In some states, you can be required to have a workers comp policy in place if you have two or more employees.
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