“Farm insurance” refers to various policies that help protect farms. Farmers need property and liability coverage for their residence and business. They may also need commercial crop and livestock insurance, equipment and commercial auto insurance, pollution liability insurance and workers’ compensation.
While farm insurance is sometimes sold as a single coverage, it is often composed of several types of insurance that are bundled to meet the needs of an individual farm or agricultural operation.
Because farms differ in their size and scope, from raising dairy cows to hosting tourist activities, it’s best to work with an insurance professional who specializes in farm coverage. An agricultural insurance specialist will understand the types of risks you face and be familiar with the crop and livestock insurance programs available through the U.S. Department of Agriculture (USDA).
Farm policies can be all-inclusive
If you own a small farm, a farm policy may satisfy most of your needs. These policies cover both your operation and your residence. They help pay for any losses to your buildings or land, and they cover liability claims involving bodily injury and property damage.
Farm property policies usually cover claims for fire, lightning, vandalism, theft, hail, wind, burst pipes and other losses (or “perils”) that are either named in the policy or not specifically excluded in an “open-perils” policy. The coverage typically includes your house, barns, silos, sheds and greenhouses. Some perils, such as floods and earthquakes, are not included, but you can usually purchase insurance for these events separately.
As with any type of property insurance, you’ll need to decide how much your home and business are worth. Begin by determining the value of all of your insurable property, which is usually accomplished through an appraisal. An insurance professional familiar with the farms in your area can help you decide what should be insured and how much coverage you need.
It’s important to set the proper “limits” for your policy. The limits are the maximum amount a policy will pay out once you’ve met your deductible. If the limits are set too low, you may find yourself underinsured if there is a significant loss such as a fire.
You may have multiple structures and pieces of equipment to insure. You can protect these using blanket coverage, which has a single limit, for a broad array of what you own. Or you can insure your property on a scheduled basis, which allows you to choose which items to insure and the amount for each of the items.
Property insurance considerations
You must also consider whether to insure your property at its replacement cost or actual cash value. Most residences are covered for the replacement cost, which means your home will be repaired or replaced using the same kind or quality of materials. Actual cash value is the replacement cost minus depreciation, which may pay significantly less depending on the age and condition of your property.
You can insure some property at its replacement cost and other property that is older using actual cash value. For example, barns and sheds that aren’t used much may be good candidates for actual cash value coverage. Remember, it will cost more to insure property at its full replacement cost.
Pay attention to what is excluded from your farm policy so you can decide if you need additional insurance. For example, will your policy cover irrigation systems, fences, driveways, outdoor lighting, specialized equipment and greenhouses? Talk to an insurance professional to make sure all of your risks are taken into account.
In addition to property insurance, farm policies have general liability coverage that pays your legal expenses if you’re sued for bodily injury, property damage or personal injury — subject to the limits and terms of your policy. General liability typically covers your attorneys fees, court costs, medical expenses and any judgments against you.
General liability insurance will also cover you if a nonemployee suffers a physical injury or property loss due to the operation of your business. For example, a general liability policy would help pay medical expenses and legal costs if a spooked animal injures a visitor on your farm. But general liability insurance doesn’t cover injuries to your own employees or family members.
Liability insurance has both occurrence and aggregate limits. The occurrence limit is the most a policy will pay for a single claim. The aggregate limit is the maximum amount the policy will pay for all claims in a single year.
Liability insurance usually works on a claims-made basis, meaning the claim must be made while the policy is in force. Claims submitted after the policy has lapsed aren’t covered.
Certain kinds of liability risk aren’t covered by a farm policy, although you may be able to purchase separate coverage. These include liability associated with farmers markets and agritourism; product liability for food you sell; and pollution liability from chemicals, pesticides and manure.
Other coverage you may need
Commercial crop insurance
You may also need commercial crop insurance. Some crops can be covered under a policy connected to the USDA, which can be purchased through a qualified agent or broker. But not all crops are covered by government-backed insurance. Crops not covered under USDA programs may include:
- Plants grown in a greenhouse
- Organic crops, fruit trees, nuts and vegetables
Inland marine insurance
You should also consider inland marine insurance to cover:
- Agricultural products while they are in transit
- Mechanical breakdown insurance for equipment
- Business interruption insurance to replace lost income if you have a power outage, fire or other covered event that temporarily shuts down your operations
Commercial auto insurance
You may also need commercial auto coverage for trucks hauling products for sale or distribution.
Lastly, you will likely need workers’ compensation insurance if you have employees. Workers’ comp pays for lost wages, medical expenses and the cost of rehabilitation if an employee gets hurt on the job.
Remember, farm insurance is a broad term. It might include many essential coverages, but not all of them. You may need to build it out with additional policies, depending on your operations. An insurance professional who specializes in farming can help you get the full protection you need.