Farm owner's insurance covers the machinery, buildings, livestock, and farm shop equipment on your operation, as well as your house and its contents (if the house is on the same property). Your farm owner's policy will also provide liability coverage.
There are many factors you and your agent will need to discuss to ensure that the policy will be appropriate to your needs. These may include but are not limited to:
- The primary industry of the farm (e.g. dairy, livestock, vegetables, etc.)
- The number of head of livestock
- If the dwelling on the property is your primary residence
- If there is a seasonal or secondary dwelling on the property
- The construction of the buildings (e.g. frame, masonry, and siding)
- If there is a woodstove for heating
- The number of miles to the nearest fire department
- If there is a pond or swimming pool on the property
- If there are rental properties on the property
- The number of acres
- If you own or rent additional farms
- If the you (the owner) are actively engaged in the farming operation
You will be required to list of all machinery that is used on a regular basis; small items such as shovels, saws, and possibly shop equipment will be listed as a group unless otherwise required. If you store harvested crops (including stored grain or produce) on your property, these will also be covered under your policy to a specific dollar amount. If you have higher inventories stored for short periods of time, please see the Additional Specialty Products document in this series.
Livestock on your property should be insured, to provide you with adequate coverage in the event that they escape the enclosure and damage someone else's property or vehicle. Animals that are being transported to market should also be insured. If you have an accident while transporting animals not listed on your insurance, they will not be covered for injury. A list of the animals you raise will need to be provided to your insurance professional, for on-farm and transportation coverage.
When talking to a new provider, you will probably not receive a premium quote at the time of your visit. Any current policies that you have should be taken along with you when visiting an insurance provider for new coverage, to ensure that you are comparing like information. Insurance agents will visit newly insured farms, to evaluate the condition of the property including buildings. The agent will measure buildings, determine the insurability of the buildings and their construction. If you are in a region where snow is a normal part of winter weather, he/she will also determine if the buildings will withstand a moderate snow load on the roof.
Many farm owners' policies are written using replacement cost value (RCV). This means an insured item's value will be the cost to replace it, should it be damaged. For example, if a tractor is lost due to a fire, that tractor will be valued at the cost of replacing it at before-loss condition. The resulting insurance payment may not be enough to purchase a new tractor (unless you can find an identical used tractor) but it will provide a down payment on a new one.
If you have a mortgage on the property or a loan on a piece of equipment, the lender will be named on the insurance policy and most probably the lender will require that a copy of the policy be provided. This ensures that, in the event of a loss, they will receive payment to cover the loss. In this case, the check will come with both yours and the lender's name on it, requiring the lender's signature before the check can be deposited.
Because farm owner's insurance includes liability coverage, in the event of an accident on your property in which someone is injured, your policy will cover medical bills. The insurance will also provide legal representation to you, as the land owner, in the event of a law suit. Medical care and legal fees can be quite costly. Keep mind that the insurance will only cover to the limit of the policy. For example, if you have a judgment awarded to someone for $100,000 and your policy limit is $150,000 you will be fully covered as long as the company's legal fees do not exceed $50,000. If the judgment is for $150,000, you may be responsible for the legal fees if you choose to have separate legal representation. It is important to check whether your farm owner's policy includes legal costs outside the policy limit; this provision would mean that you as the policy holder would not be responsible for legal fees in this scenario.
Although it is sometimes difficult keeping outsiders off your land, take care how you handle this issue. If you intentionally construct something that has the potential to injure trespassers who come onto your property, you may not be covered for the resulting injuries. The policy will only cover you for accidents. If in doubt, ask your insurance provider if a particular structure is covered. For more information regarding farm liability, please see Understanding Agricultural Liability.
There are several additional types of coverage you may wish to consider when purchasing farm insurance. One of these is pollution insurance. If you move equipment containing pesticides on public roads, a small spill could cause thousands of dollars to clean up. Spreading manure on your fields, may contaminate a neighbor's well; having livestock pastured near a stream may result in water pollution. There have been several court rulings that have held the farmer responsible for just these types of occurrence. It may cost thousands of dollars if you are found responsible. Telling your insurance provider about the activities on your farm is a worthwhile discussion to ensure that your assets are protected.
Inviting the public onto your property will greatly increase your liability. Inform your insurance provider if you have a pick-your-own enterprise, so that your policy covers this activity. If you have an agritainment operation on your property (such as a corn maze or hayride), you may be required to have a specific, separate policy to cover that enterprise.
Many farms will have a farm owner's policy that covers to a specified limit, supplemented by a blanket policy providing additional coverage. This blanket policy provides protection "a financial safety net," in the event of a claim; it is usually a less expensive way to ensure coverage is ample, without having multiple policies.
Many farm owners' policies also include a limited amount of product liability insurance (this is coverage related to consumer injuries due to food or other products you sold). Product liability insurance pays for your defense if you are taken to court, as well as providing payment (up to the policy limit), if the court judgment goes against you. Product liability will be covered in more depth in another document in this series.
To prepare for your Farm Owners' Coverage Conversation, gather the following information:
- Year Business Started
- Gross Annual Farming Receipts
- Is farming the applicant's main source of income? If No, what is the main source of income?
- Who actually farms the premises?
- List of the applicant's enterprises, including a description by premises (Could include, but not limited to: Bees, Dairy, Greenhouses, Vineyards, Fruits, Fur-bearing Animals, Nuts, Livestock, Mushrooms, Nursery Stock, Vegetables, Sod, Tobacco, Flowers, Worms, Field Crops, or Poultry)
- Are the farm premises open to the public for activities such as roadside stands, "u-pick" recreational, "rent-a-garden", auction, sales, show, food or beverage service, hay rides, fishing, kennels, animal breeding or Christmas tree sales uses?
- Is any part of the farm used or leased for organized recreational use?
- Are any portions of the farm rented, leased, or used by other individuals, corporations or interests for other than farming?
- Are any premises used for fee hunting purpose?
- Does the applicant allow others to hunt on premises?
- Does the applicant have a website pertaining to these operations?
- Are any of the applicant's operations insured with another company?
- Does the applicant own or operate any other type of business?
- Does the applicant perform maintenance on equipment? If not, who does?
- Is a formal safety program in existence?
- Has the applicant had any losses within the past five years?
- Does the applicant milk cows? If yes, number of cows milked?
- Is there any processing of milk on-farm? Are there retail sales of milk products to the public, including raw milk?
- Does applicant mix, process, slaughter, butcher or otherwise prepare for any "end consumer" his or any other grower's products?
- Are independent contractors hired to perform any farming operations?
- Does applicant handle product, such as seed, fertilizer, sprays, etc. for resale?
- Does applicant build, repair or design machinery, equipment or systems for anyone at a charge of fee?
- Are any contract or service operations performed for others such as snow removal, filing, excavating or ditching?
- Does the applicant maintain a non-farming office, day care, or private school in an insured building?
Prepared by Lynn F. Kime, extension associate; Winifred W. McGee, extension educator; Robert Faubel, independent insurance agent, Danner's Insurance; and Maggie Garcia-Taylor, insurance agent, Garcia-Taylor Insurance Agency.
This document is based on work supported by USDA, Risk Management Agency, 2014 Risk Management Education Partnerships Program, Agreement Number 14-IE-53102-036.