Owning a farm — whether it’s a full business operation, hobby farm or a newly purchased acreage — brings unique insurance needs. Adequate coverage for the land, buildings and equipment is highly dependent on various factors.
We know no one (except us!) loves to spend time thinking about insurance, but having the right coverage in place is critical when the unexpected happens. Especially with increased occurrences of natural disasters in recent years, “unexpected” can also mean “expensive.”
As insurance advisors, we specialize in helping farmers assess their insurance needs. Whether they are seasoned operators, or folks who are brand new to farm ownership, helping them figure out exactly what they need (and equally as important, don’t need) to protect their investments is important.
Let’s break it down.
First Up: What’s Your Equipment Worth?
When we meet with farmers, the first question we typically ask is, “What’s the total value of your equipment?”
If you don’t know, start creating an equipment inventory. We’ll want to know:
- Manufacturer
- Model
- Year
- Original purchase price
When you’re considering the best kind of insurance plan, knowing exactly what property you have helps to identify the right risk coverage needed.
Differences in Blanket vs. Scheduled Coverage
Insuring farm property typically involves two main options: blanket or scheduled coverage. Each has their place, and what’s best for you depends on your operation.
Blanket coverage insures all your equipment under one policy value. This coverage tends to work well for farms that have a lot of equipment or when machinery changes often, like seasonal rentals, new purchases or frequent upgrades.
Benefits of blanket coverage include:
- Easier to manage – you don’t have to list every specific item and its value.
- Automatic coverage for new purchases – as long as the total equipment value doesn’t exceed the coverage limit (see below about replacement values.)
- Flexibility – if one piece of equipment is undervalued but another is over, the coverage can shift within the blanket.
At the same time, there are important considerations when it comes to blanket coverage:
- Co-insurance clauses – blanket policies may require you to insure a certain percentage (often 80%) of the total equipment value, and if you don’t, you could incur a penalty during a claim.
- Record-keeping – while it’s generally easy to manage, keeping a good inventory of your equipment helps A LOT if a claim occurs.
Scheduled coverage, on the other hand, lists each piece of specific equipment along with its value. Generally, scheduled coverage makes sense if you want tighter control over your insurance and fewer surprises in the event of a loss.
Benefits of scheduled coverage include:
- Knowing exactly what’s covered and for how much.
- Tailor fitting coverage terms to specific property needs.
- Claims are generally easier to process for equipment losses.
Just like Blanket coverage, there are important considerations for Scheduled:
- Typically, new equipment needs to be updated on your policy — no matter if the equipment is brand new or traded, you’d need to notify your advisor or carrier to update the policy.
- Because of the specificity of coverage, there’s more administrative work to keep your policy updated. Every time equipment is bought, sold or traded, your policy will need to reflect the change.
Most Farmers Use Both Blanket and Scheduled Policies
A mix of both Blanket and Scheduled insurance policies often makes sense for farmers. High-value items, like tractors, combines or specialized equipment, usually need to be scheduled, while smaller tools or older equipment can safely be protected under a blanket policy.
Replacement Costs vs. Actual Cash Value for Equipment and Buildings
As mentioned earlier, in the case of a loss, it’s also important to understand replacement costs vs. actual cash value of equipment and property. Replacement cost coverage pays to replace equipment and property with new or like-kind items or materials. Actual cash value factors in depreciation, which can make a big difference if you’re relying on older equipment or need to replace a building.
When it comes to farm structures, especially older buildings, farmers can be surprised to learn that their barns or outbuildings are only insured for a depreciated value or that their deductibles for wind or hail damage are higher than expected. Also, if property has been upgraded, for instance a structure has been renovated and includes a new HVAC system and plumbing that wasn’t included before, your coverage needs to be updated to reflect the additions. Keeping your coverage up-to-date and knowing the details of what it includes, or doesn’t, will help set expectations if you experience major losses.
Not a Surprise — Rates are Rising
Unfortunately, but unavoidably, due to more frequent natural disasters, insurance rates have been steadily rising. Sometimes coverage changes happen without notice. Higher deductibles, reduced limits or changes in policy language can leave you exposed to financial risks. Be sure to review your farm insurance coverage with your advisor. A policy review shouldn’t cost you anything, but finding out after a loss that you weren’t properly insured can cost you a lot.
Let’s Talk!
If you’re unsure what’s covered on your current policy or would just like to confirm you’ve got a solid plan, we’d be happy to help. Together, we’ll review your farm property and equipment along with your liability coverage to make sure you’re properly protected.
