The farm life is full of bliss, happiness, and inspiration. Once, you were just envisioning of purchasing a big lot where you can build a remote house, raise cattle, and plant crops. Now, the dream has finally become a reality. Everything is set until you started worrying about the worst-case scenarios. “What happens if my farmhouse will be caught on fire? If my employees start getting injuries? When my cattle die?” you asked. The once happy and clear vision slowly became blurry because of the fear of losing your well-beloved investment. It is understandable how these perils can cause worries to a farm owner. Fret no more! The solution is to get a Farm Policy to ensure that your investments will be protected. One of the most common concerns when getting a farm insured is the cost. Due to its unique structure, there is no definite sum as to how much it costs to insure a farm. In this article, I collated some information that will give you an overview of the costs of farm insurance.
What is the coverage and how much will it cost?
Similar to other insurance models, there are specific insurance policies that can cover each aspect of your farm operations. In general, there are 3 main categories under the Farm Policy: Property, Asset, and Liability.
- Property Insurance – this policy can cover damages to a farmhouse and its permanently attached contents like cabinets, doors, and even some appliances. Because rebuilding a home often exceeds its actual value, most farm dwelling insurance is calculated based on the Replacement Cost Value of the property. It means that the depreciated price of the house will not be deducted from the cost to repair the property. Also, the insurer will cover the rebuilding of the house based on the reconstruction cost. For example, 8 years ago it cost you $150,000 to build your farmhouse. You had it insured for its actual value with your insurance agent. 8 years later, the house was caught on fire and burned to ashes. After consulting your engineers, you learned that the cost to rebuild the house, in 2020, is now at $250,000. Since you had it insured for its actual value back then, you would only get $150,000 from your insurance company and will have to pay the extra out of your pocket. The sample scenario can be prevented. When choosing the coverage amount for your farmhouse, it is best to consider the reconstruction cost rather than the actual value. Depending on the size of your house, the cost to rebuild it may range from $100 to $150 per square foot. Aside from the size, the material, age, claim history, and the location is also taken into consideration.
The average cost of home insurance depending on your state is from $400 to $3000 per year. For example, if you live in Delaware, your home insurance may cost around $500; if you live in Oklahoma, it will cost you around $2500. Aside from the home structure, you can price out your personal property from 50%-75% of your farm dwelling coverage amount. If you have high-value items and you think the amount would not suffice, you may ask your insurance agent for details about extra coverage.
Other than your farmhouse, most property contents such as equipment and machinery are not covered by the farm policy automatically. Getting a Farm Equipment Policy will protect you from any losses caused by damaged equipment or machinery. Farm equipment is mostly high-value. A farm tractor-trailer may cost $200,000. It is vital to have this equipment insured for you not to suffer a loss. Per year, it costs $2000 to $4000 to insure a tractor-trailer. The price will decrease along the way depending on the equipment’s depreciated value.
- Asset Insurance – this policy provides coverage for your farm animals such as cattle, dairy, swine, and lamb during natural calamities and accidents. The Livestock Policy has three types of coverage namely, Individual, Herd, and Blanket. Individual coverage is recommended for high-value animals. The herd is used if you want to insure a larger number of animals such as 100 cows. Blanket covers all your farm property such as its structures, equipment, tools, and livestock. Since animals covered by the Individual policy is of higher value, the insurance cost will be greater than Herd or Blanket.
Most Livestock Policies do not cover death caused by animal diseases. Hence, it is recommended to get an Animal Mortality Coverage. This will help ensure that your animals will be fully covered when it dies due to diseases caused by hypothermia, contamination, or contagion. On average, the Animal Mortality Coverage may cost 2.5% to 5% of the value of livestock. For example, an average slaughter cow will cost $50 per Cwt (100 pounds (ca. 45 kg)); a cow weighing 1100 kilograms will cost $550. The estimated cost to insure a cow weighing 1100 kilograms will range from $13.75 to $27.50.
Also, the USDA’s Risk Management Agency has initiated a pilot insurance program that guarantees a minimum price for feeder and fed cattle. This is called the Livestock Risk Protection. RMA’s Livestock Risk Protection offers coverage from 70%-100% of the expected sale value of your livestock. Meanwhile, the Federal Crop Insurance Corporation will subsidize up to 13% of the livestock premiums. The insurance value has nothing to do with how much your cattle can sell for. This merely provides a guaranteed minimum income for your insured cattle. The cost of each livestock will depend on the coverage you choose.
- Farm Liability – No matter how careful we are at work, accidents may still occur. The Farm Liability policy will protect you if any of your visitors get injured while at the farm. Having Liability insurance can protect you from any lawsuit filed by an injured person as you will not be held responsible. Also, your insurance company will cover the medical expenses, property damages, and legal fees as outlined in your insurance policy. For example, your child’s friends visited over, and they got excited to milk a cow. Due to the loud noises caused by the kids, it frightened the mother cow and it accidentally stepped on the kid’s foot. Even if no one is at fault, you are still legally liable for what happened so your insurance will cover the injuries and expenses. The insurance premium will depend on your type of operations and risk level.
Another common type of Farm Liability Policy is the Worker’s Compensation Insurance. This specific insurance will cover you in case your employees will be involved in an accident. It will help pay-off any expenses needed for the employee to recuperate. The Worker’s Compensation Insurance can pay up to 100% of medical expenses caused by work-related injuries. It will also provide cash benefits for lost work due to the accident. The premium amount of the Worker’s Compensation Insurance will depend on the location, farm operations, employee’s job role, claim history, and annual payroll receipt; a higher annual payroll amount will equate to higher premium rates. Employing contractual or part-time employees will cost you higher premium rates than regular full-time employees. Also, a field worker’s insurance would cost more than an office employee due to the amount of risk involved. Each state has different premium charges. The amount you pay for the premium is based on every $100 of your annual payroll. For example, the average cost of the Worker’s Compensation Insurance in Texas would start at $0.75 per $100 payroll amount. Say, you have a total of 10 farm employees and each employee gets paid $25,000 annually. Your annual payroll amount will be $250,000. Basing on your annual payroll, the estimated insurance premium would be $187.50 a year. This amount may increase depending on your employees’ type of work and if you have filed claims previously.
How to determine the cost of farm insurance?
Most insurance companies offer various farm policies depending on your needs. Most insurance premiums would be based on your farm’s business model, location, employee count, risk factors, and claim histories. The best way to know how much your farm insurance would cost is to contact your trusted insurance agent. The agent will visit your farm to assess your property and operational processes. Doing this could help him come up with a plan that will cover all areas of your farming operations. Once your agent is done with the assessment, he will be discussing the insurance premium and deductibles, if there is any. An insurance premium is an amount charged by the insurance company for the plan you have chosen. A deductible is an amount that you will pay out of your pocket before your insurance company starts paying. Take note that the insurance company will only pay up to the dollar limit of the policy. If the cost of the damage would be more than the limit, you will have to pay extra.
Should I get a farm policy?
Let me ask, “Are you ready to lose all your hard work, time, and money spent on the farm during an extenuating circumstance?” If you answered a big NO to that question then, yes, you should get a Farm Policy. Getting a customized farm policy is beneficial to you as a farm owner as it serves to safeguard your effort and investment. Unlike the old times, farm policies are now more comprehensive and can be customized to offer optimum protection to farm owners like you. It is normal to hesitate to allot a large portion of your funds for insurance at the same time, take it as a good risk assessment strategy. Think of it as your blanket in time of perils. Having a farm policy will not only benefit you financially but would also prevent lawsuits against you during unforeseeable events. Lenders may also be more willing to provide loans, knowing that the losses are covered by your Farm Insurance.
How to reduce my insurance premium?
I know! No one is more than willing to break the bank and pay hundreds of dollars annually for an insurance plan. No worries, the tips below can guide you on how you can reduce the cost of your insurance plan.
- Before getting insurance, try contacting or researching different insurance companies to know the prices. This will help you compare plans and choose one that suits your needs at a lower cost.
- Raise your Deductible – a higher deductible will result in lower premium rates. Do this only if you’re willing to cover extra once you experience a loss. If you could not afford an unplanned $10,000 expense, keep your deductible below that amount. Higher deductibles also send a message that the insurer does not intend to collect from the plan unless due to extenuating circumstances.
- Get a comprehensive policy that has broader peril coverage including accidents, diseases, injuries, theft, and natural calamities. This will ensure full protection at a lesser cost.
- Be open and honest with your insurance agent. They can help assess your needs and come up with a plan that will cover all aspects of your farming operations. Don’t hesitate to ask them questions on how you can further reduce your premium and the limitations of your farm insurance.
- Ask about additional discounts. Most insurance companies offer additional discounts when the insured gets multiple policies from them.
- Avoid filing too many claims. Claim histories can hike your insurance premium. Well-cared-for properties, assets, and employees will help reduce insurance claims. Always do spot checks and assess the condition of your home and equipment to ensure it has no damages. Increasing your deductible can also help reduce the amount of filed claims.
- Value your properties and assets carefully to reduce over-paying and under-paying your insurance.
All-in-all, having a Farm Insurance should help ease your worries as a farm owner and not add up to the burden of your expenses. The number of available farm policies can be overwhelming especially if you are new. Therefore, it pays to consult the experts and stay updated so you are sure that you will be getting the protection you need. Remember, prevention is better than cure! Getting insurance now can help reduce unexpected expenses in the future. Let us help you get started. Give us a call today or send us a message for any queries!