A Tale of Two Farmers
Two gentlemen decided to leave the city and start a new career in farming. Jack got himself a 500-acre farm for farming grain plus two cowsheds and a finishing barn for a thousand sow. He also invested in farm machinery to help him in his livestock and grain operation. He thought his business was doing well so he hired more farmhands as planned to purchase more equipment to cater to his needs.
Jack’s friend Tony, on the other hand, went on to build a hog farm. To support his operation, he built a finishing barn, a weaning barn, and augment both with feeding equipment. He also thought of investing in a facility that will convert the hog wastes of his farm into organic fertilizer and natural gas.
From a layman’s point of view, it would be easy to assume that since both farmers are involved in hog farming, it would be easy for them to compare notes and opt for similar solutions for their operation.
Truth is, there is no one-size-fits-all solution to their concern. In this day of “instant solutions” to almost every existing problem around us… personalized solutions are either treated as a costly commodity or a welcome treat. An off-the-shelf remedy may be good for some issues but nothing beats going through the process to find that perfect fit.
In the case of Jack and Tony, both may have farms that operated under the same business type, both may also have almost similar concerns but the solution is not necessarily the same. The important thing is that both have farm coverage to protect their businesses.
Farm Insurance: Protecting Farmers from Eventuality
Getting insurance is a risk management strategy and is a must in any business operation. Farm operation is not an exemption, especially if aside from being a place for the business, the farm also serves as the owner’s home.
To simplify, a farm insurance policy is an integration of personal and business policy tailor-fitted based on the needs of the person insured.
This type of policy can provide coverage for the following:
Dwelling coverage. This covers the insured’s home and possessions against fire, hail, lightning, windstorms, and even theft and vandalism.
- Farm personal property coverage. Covers the livestock, feed, machinery, and equipment
- Fair rental value coverage. This provision subsidizes pay for the fair rental value of the farm home if it becomes uninhabitable due to a covered loss. The coverage pays for the owner’s rental elsewhere while his home is being repaired. Meanwhile, if he rents out space on his farm to other tenants and it incurs a covered loss which makes it uninhabitable, the coverage will also pay the fair rental value of that rental.
- Farm outbuilding coverage. Covers the barns, machine sheds, detached structures like garages and other outbuildings
- Farm liability coverage. Provides insurance for the unexpected, including bodily injury, medical expenses, or farm property damage.
- Additional living expenses coverage. Covers additional living expenses in case the owner needs to move out of his home due to a covered loss.
Farm Personal Property. This coverage includes items and tools used in farming operations. This is broken down in three categories:
- Farm machinery and equipment. Covers farm machinery and equipment including but not limited to tractors combines and cotton pickers. This provision also includes farm office equipment, portable irrigation equipment, portable fences, and structures, as well as tools and supplies
- Livestock. This category covers broad causes of livestock loss including death due to accidental shooting, hit by a vehicle. However, it does not cover livestock death due to disease, old age, or natural death. To augment this, a separate endorsement similar to this may be added, called the “livestock mortality” policy which can give extended protection against livestock disease, old age, or natural cause of death.
- Farm products. This category covers feed, grain, seed, and similar items which are considered farm products. It should be noted, however, that these are covered only while they are stored. Once planted, they lose their coverage as with the other crops grown on the property.
Farm Liability Protection
This provision is a must in all farm insurance policies because of the possible risks a farm business may face anytime. It covers bodily injuries, medical expenses, and even property damages, if necessary. It also includes provisions for lawsuits as the need arises. As accidents, though unexpected, are likely to happen anytime, it is a good measure to keep this in place. Even under the most strenuous precautions, accidents can occur. Even with years of experience can have an accident and hurt themselves while working with machinery. Something could startle an animal and cause it to injure a senior handler. Or for example, 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 deemed liable.
Other Notable Perils In signing up for a very good farm insurance coverage. The following should also be considered when determining liabilities that may need coverage:
- Additional structures. This refers to additional barns or stables that have been repurposed for agricultural use.
- Livestock. To give extra coverage for “incidental income”, an additional policy on top of the regular farmer insurance might be needed to protect the farm’s interest. This is to cover farm animals that are seen to generate significant income for the business.
- Workers compensation. This provides protection for the farmer against financial loss due to a lawsuit or medical expenses compensation for the farmhand, and as an additional benefit for the employee. This is recommended If there are more than two persons employed to operate the farm.
Optional Insurance Coverages Enables the insured to customize his policy according to his farm’s specific needs.
- Farm equipment breakdown coverages. Additional coverage that provides protection to the insured is covered equipment due to an accident. Examples of these are appliances, home systems, or smart home devices damaged due to electrical, mechanical, or pressure system breakdowns.
- Farm income coverage. An endorsement is normally added to the base coverage in order to get a reimbursement for loss of farm earnings, extra expenses, or farm rent when the covered property is damaged by an insured peril.
- Replacement cost coverage for irrigation systems. This covers the cost of substituting irrigation systems.
- Additional farm property coverages. Offers extra protection for additional livestock hazards including increased limits on borrowed machinery.
- Supplementary coverages. Add-on coverage embedded into the policy for service charge on the following: fire department, debris removal, fences, signs, trees, and more.
- Other coverages. Comprehensive coverage for farmers which includes replacement costs for outbuildings, medical expenses for employees, peak season protection and other increased protection for specific periods of time and more.
- Pollution cleanup, which includes third party liability (limited farm pollution incident liability coverage), first-party supplement site pollution coverage and bodily injury and property damage
- Liability for caring for another person’s farm animals at the insured’s farm. This unfortunate event may cause the farmer to be held responsible for the death of some or all of this livestock
- Assorted risks associated with the growth of field crops.
Given these potential scenarios, how can a farmer make sure he is getting adequate coverage to protect the interest of his farming business?
For one, he can start by assessing all potential risks to their business operations. Since no two farms are exactly alike, it is important that he gets coverage that will perfectly fit his requirement while keeping the cost reasonable.
To make sure the better if these risks are duly covered by his farmer insurance policy:
- The primary nature of the farm (e.g. dairy, livestock, vegetables, etc.)
- Total population or head of livestock
- If the farm owner’s primary residence is also at the farm
- Presence of a seasonal or secondary dwelling on the property
- Structural type of the property (e.g. frame, masonry, and siding)
- Equipment used for heating (woodstove, etc.)
- Proximity to the nearest fire department
- The proximity of the water source like a pond or swimming pool on the property
- Presence of rental properties on the property
- Size of the farm measured in acres
- Ownership or rental of additional farms
- Owner’s engagement in the farming operation
Understanding Commercial Insurance
Another way to validate whether the farm business has adequate coverage for the commercial needs of his farm business is to compare it with the provisions of commercial insurance. Commercial insurance is designed primarily to protect businesses. It insures businesses against losses caused by damage to property or injury to employees. The coverage is designed to protect core businesses with public liability and employer’s liability.
These are the seven common types of commercial insurance most businesses invest in:
- Commercial Property. This refers to business property investments such as buildings, land, and equipment. Protection is given in case of fire, theft, vandalism, and natural disasters. Basically it provides almost the same protection personal property insurance provides to individuals, taking into consideration the following:
- location of the property
- structural materials used in making property
- age of the structure
- nature of the business occupying the premises and potential risks (i.e. restaurants presents a higher risk than a salon)
- availability of protective devices in the building like fire alarms, sprinkler and security systems
- General Liability. This is comprehensive general liability insurance which provides protection for businesses from financial loss related to illness, medical expenses and damage caused by the company’s operations, products or services
- Business Income. The business income insurance compensates a company by replacing lost income due to an event that disrupts business activity, including natural disasters and fires. This will cover losses for the entire period that the company’s operations are on hold. The policy will cover the following:
- Fixed costs including rent or mortgage payments
- Lost profits
- Cost of a temporary location
- Employee wages
- Payment of loans
2. Commercial Auto Insurance. This covers vehicles used in line with the regular operations of the business. It provides coverage against theft, physical damage, and liability, including the employees driving the company cars, vans, and trucks.
- Medical payments
- Physical damage
- Theft and vandalism
- Bodily injury liability
- Property damage liability
- Collision coverage
3. Workers Compensation. Manpower is one of the most important resources in any organization. It is considered as one of the four pillars in business: the other three being Money, Materials, and Machine. Companies hire for character and train for skills. One of the potential reasons why people come and go is probably due to a lack of compensation and recognition. The workers’ compensation provision is actually used to entice good people to apply and stay in the company. Many states require this particular insurance coverage. This actually protects both the employees and the business and fosters goodwill between them. The employee is compensated in case of injury, illness, or disability while in the workplace. In case of death, their families are also compensated for their loss.
4. Health Insurance. This refers to health insurance plans that are not covered by the government. Instead, it is issued by employers and is used to provide coverage for medical expenses and disability income. Many small businesses can use this to provide coverage to their workers, their spouses, and other dependents. The cost is normally divided between the employer for the insurance while a certain percentage is shouldered by the employee. and the employer
5. Business Owners Policy (BOP). An insurance package designed with small business owners in mind. It allows the business owner to simplify his coverage and save on premium by getting this package. It combines the liability and income/ property protections and liability into one policy covering the following:
- Commercial general liability insurance
- Commercial property insurance
- Business income insurance
Farmer Insurance and Commercial Insurance
Farming is one of the most high-risk industries in the country, or perhaps everywhere. The occupational hazards are high: accidental falls, injuries from machines, chemical burns and poisoning, vulnerability to weather conditions, death of livestock, and so on. On top of this is manpower concern, as most agricultural/farmworkers are seasonal or foreign workers. The task of getting enough manpower to keep a steady flow of farmhand has been a challenge ever since.
Can a farmer’s insurance policy provide enough coverage to protect a farming business? Or does he need to get another commercial insurance policy to protect his business?
Let’s go back to Jack and Tony.
Jack set up a livestock and grain farm and hired lots of farmhands to handle the equipment and machinery he bought for his farm business operation. He already spent quite a sum of money on hiring his people and they are almost on a one-to-one ratio with his machines. Now he is conscious that he could lose money if any of his machines break down even for a day. He now sees potential risks in his operation: machinery and equipment, too many farm employees which could potentially lead to loss of profit.
Tony’s hog farm might have started on good footing. He was able to build all the needed support mechanisms for his hog operation. Until he learned that many of their friends who also went into the business have lost pigs for different reasons including power failure. The farm is also already accumulating so much pig wastes which could cause potential pollution. He is now looking at how he can protect his business from possible lawsuits from the neighboring community.
Considering both Jack and Tony were able to get adequate insurance coverage for their farm operation. Their policy should be able to provide them with coverage for the following risks:
For Jack: The personal property coverage and workers’ compensation provision in his policy should be able to cover his requirement until he is able to find another diversion or usage for both resources.
For Tony: His insurance coverage should be able to cover possible animal mortality, machine and equipment keep up, as well as the pollution concern. Moving forward, his issue with the farm waste will eventually make way for organic fertilizer as well as biogas production.
Businesses that do not invest in insurance policies are setting themselves up for a bigger loss in having to pay out of pocket when a disaster strikes their property or a claim is made against their company. This may eventually lead to financial ruin, especially for small businesses.
The farmers’ insurance policy offers good provisions that will surely protect the farmer in his agri-business. Does a farmer need to get separate commercial insurance for his business on top of his farmer insurance policy?
Looking at the farmer insurance closely, one can surmise that the basic provisions in it are also reflected in a commercial insurance policy. If there are still provisions not reflected in the farmers’ insurance, adjustments can always be made through the way of endorsements. Perhaps what could be further improved in each individual policy is careful planning, an intuitive foresight of what else could possibly go wrong in the farm’s operation. There are ways to address these concerns, possibly by having clearly defined terms, carefully enumerated issues so the insured can have a better and clearer understanding of the policy’s basic provisions and endorsements. As they said, different strokes for different folks… and different plans for different farms.
If you need any help, please don’t hesitate to contact us and we’ll help you get sorted out.