The 7 Key Areas of a Farm and Ranch Insurance Policy
The seven basics of farm and ranch insurance looks easy on paper, but in reality, there is a lot that goes into finding the right coverages for the buildings, animals, and personal property among other things. It is usually a highly customized policy. The policy starts with reviewing basic coverages, then adding specialized options, based on the needs of your client, and finally reviewing the policy with the customer. When it comes to farming and ranching, it is essential to ask the right questions the first time in gaining the client’s trust and possible future business.
The fundamentals of farming insurance policies include how to insure buildings, dwellings, livestock, seed, hay, tools, and equipment.
- REPLACEMENT COST (RC) VS ACTUAL CASH VALUE (ACV)
RC= the cost to repair or replace the original building using common construction techniques and materials.
ACV= the estimated cost to repair or replace at the time of loss, less a deduction for pre-loss depreciation.
Replacement Value requires a square footage calculation with a program. This program will give you 100% replacement value of a specific dwelling or building. With Dwellings 100-80% is required to keep replacement value on the dwelling. With Farm policies, they do not always offer inflation protector like most Homeowners, so it is very important to have regular reviews.
Actual Cash Value would be insuring at 79% or less of that replacement value, figured for each building. This value will see a depreciation calculation at a time of loss.
- HOUSE AND FARM PERSONAL PROPERTY
Household personal property is insured very similar to a homeowner’s policy, typical HO3 policies are 75% of the dwelling value, this is common across most Farm and Ranch policies, there are some that only offer 50%.
There are a couple of ways to write farm personal property.
- BLANKET COVERAGES
The most popular is a blanket coverage, your put all coverage together, when insuring this way, the farmer needs to know that at a time of loss he has to have at least 80% of the value of all property insured.
Scheduled farm property is where they just want specific items insured to value and might have a loss payee.
- COVERAGE OPTIONS:
The farm/ranch policy includes the following list of available property
Coverage A—Residence, for the main dwelling and attached structures
Coverage B—Related Private Structures, for other structures related to residential use
Coverage C—Personal Property of the insured and of guests or domestic employees
Coverage D—Additional Living Costs and Loss of Rent resulting from a covered loss to
Coverage E—Farm Structures, such as barns, silos and other permanent or portable
Coverage F—Scheduled Farm Personal Property, including machinery, equipment,
livestock and farm products, supplies and commodities
Coverage G—Unscheduled Farm Personal Property, such as property in the open and
property away from the premises
- FARM STRUCTURE TYPES
- Type 1 buildings: gets the best rate must follow this criterion
- Insured to 100% ACV
- Be of superior or excellent repair
- Building entirely closed
- One story no higher than 26 ft exception grain handling
- Steel or conventional frame with continuous concrete foundation
- Steel bin must be written over $1000
- Private garages written for $3000
- All other structures written for $5000 or more
- Must be utilized for its intended purpose no hay storage
- Type 2 buildings
- Must be insure at minimum of 80% ACV
- Have 3 sides, pole frame construction, spot footing foundations
- Masonry silos,
- Hay storage
- Other structures written below $5000- with stipulations
- Type 3 buildings
- Portable buildings
- Light poles
- Manufacture homes
- Fabric covered steel buildings
- Fences- not boundary fences
- Buildings used for other than original purpose
- Must be insured at least 50% ACV
- Additional Insured’s: This extends coverage to a third party to address an additional liability exposure: The form you use is based on what the additional insured is (landlord, lessor, franchisor, general contractor, etc.)
- Additional Coverages: Inflation Coverage for Farm Buildings, Borrowed Farm Equipment, Newly Acquired Farm Equipment, Property off premise, Optional Coverages
- ADPL- Accidental Direct Physical Loss
- Seasonal Coverage- calves, hay, grain, things of that nature
- Provides ADPL for all farm machinery, but this does not apply to livestock, grain & feed, tools & supplies, or irrigation equipment
- Provides ADPL for only the following and all items in this category must be covered. You cannot pick and choose items to cover.
- Farm tractors
- Hay balers
- Harvesters of all kinds including combines, corn pickers, cotton pickers, fruit and vegetable pickers, potato diggers and pickers, sugar beet diggers, peanut diggers and silage choppers.
- FARM LIABILITY RISKS
- Bodily Injury/ Property Damage
•Personal and Advertising Injury
•Limits of Insurance
•Farm Liability conditions
Covered causes if loss:
Basic, Limited (Broad) and Special:
Fire or lightening
Windstorm or hail
Riot or Civil Commotion
Collision Coverage E & F ONLY
Earthquake loss to Livestock
Flood Loss to Livestock
All Basic coverage plus
Electrocution of covered Livestock
Attacks on Livestock by Wild Animal or dogs
Accidental shooting of covered Livestock
Drowning of Covered Livestock from external sources
Loading / unloading accidents
Glass Breakage or safety glazing materials
Weight of Ice, Snow, or sleet
Sudden or accidental tearing apart
Accidental discharge or leakage of water or stream
Sudden or accidental damage
Includes Basic and Broad
It will be shown on declarations as “special” cause of loss. Risks are of Direct Physical loss unless excluded for all the Basic coverages. This depends on the company.
Power failure- Utility Services
War & Military action
As you can see, there are many areas that need to be covered in farm and ranch insurance and we just covered the surface. Take advantage of the many tools out there to help you determine the right amount of coverage; they will help you in the end.
To find out more on this subject, visit www.communityeducators.net and search for the course “Fundamentals of Farm and Ranch Insurance”.