Farm property insurance can be an effective tool for supporting the stability of farm and ranch businesses. When buildings are damaged, equipment breaks, and valuable supplies like feed and seed are lost, producers can receive money from farm property insurance to replace or rebuild those items that enable day-to-day operations. If you haven’t yet considered whether farm property insurance, in general, is a good risk management option for you, please check out our Farm Property Insurance Basics guide to get started.
If you’ve already considered how farm property insurance can increase your resilience and you want to learn more before calling an insurance agent, then you’re in the right place!
This guide breaks down how farm property insurance fundamentally works, helping you get clear on what items on your farm you want covered from the perils that are of top concern to you. We will also address the different types of property coverage available so you can decide whether blanket coverage or scheduled coverage may be a better fit for your needs. Afterwards, you’ll be well positioned to contact an insurance agent to get or extend farm property insurance coverage to meet your needs.
Let’s get started!
Homeowners insurance won’t cover your farm stuff
As a farmer or rancher, you rely on the use of buildings, equipment, tools, and supplies for your day-to-day operations. Whether it’s hand tools for cultivation, the tractor that does it all, or the packshed and barn that you can’t imagine running your business without, you have some pretty valuable and necessary property items. In legal terms, this is your farm personal property (FPP). The law likes to call this stuff farm “personal property” to distinguish it from “real property” which is real estate, another valuable farm asset but one that is not the subject of this guide. For now, we’ll call it your farm stuff.
In the case of theft, storm damage, fire, or just plain bad luck, do you know whether you’d have funds to repair or replace your farm stuff?
If you have homeowners insurance and live on the farm, you might assume that policy would also compensate you for loss of your farm stuff. However, this is generally not the case. Homeowners insurance typically covers the primary home, the possessions inside that home, and outbuildings, structures, and supplies related to the home. This coverage does not include protection for property related to and used by the farm or ranch business unless you specifically sought coverage through a farm insurance policy.
What if I’m leasing? If you’re farming on leased land, then you are in a different situation altogether. Consider whether commercial insurance may meet your needs by asking peers and consulting with an insurance agent.
If you already have a farm insurance policy, this is an opportunity to review whether you need your existing property coverage to be tailored to better fit your current farm or ranch business needs and budget.
The hybridity of farm insurance
Farm property coverage is typically sold as part of a farm insurance policy. As many farmers and ranchers work and live in the same place, farm insurance is a blend of elements from both home and commercial policies. This hybrid coverage addresses the fact that a loss on the farm can be both personally and financially devastating. Sometimes farm insurance looks more like homeowners insurance, sometimes it looks more commercial, depending on the customer’s needs. These policies also go by different names, varying by insurer. Common policy names include: farm and ranch insurance, farmowners insurance, and other farm oriented names.
Importantly, the simplicity of the policy name masks the extensive creative opportunities to customize a policy for your farm or ranch, in particular. The policy covers property, starting with coverage of the dwelling on the farm and is combined with coverage for the operational needs of the farm business, including farm buildings, equipment, and supplies. Farm insurance also generally covers lability for injuries, but that’s discussed in another guide.
We’ll be focusing on the farm property insurance aspect of farm insurance policies here.
Basic elements of farm property insurance
Farm property insurance can increase your legal resilience by paying out money to replace or rebuild your farm stuff, which we’ll now refer to as your farm personal property (FPP), when it is damaged or destroyed. Seems straightforward enough, right? Not quite, as the devil is in the details.
There are three basic elements to every property policy: (1) listed property that is protected from (2) covered perils (the legal term for terrible things that could happen) at (3) an insured value.
Keep in mind: All that matters is the words in your policy. Your policy is your contract for coverage, which includes those three basic elements: your listed property, covered perils, and insured values.
Let’s now review each of these elements in detail. By honing in on exactly how each of these policy elements work, you’ll be able to better identify your farm personal property coverage needs.
How does FPP get listed for coverage?
You now know that the first essential component of a farm property insurance policy is the listed property. A logical follow up question is how do you list your FPP for coverage? Or, in insurance terms, how do you get farm insurance coverage extended to the particular items you want covered?
You’ve got options!
There are two different types of insurance coverage: scheduled coverage and blanket coverage. There are benefits to both, and you may select one or the other given your farm/ranch operations, but also keep in mind that it’s not uncommon to use both.
With either coverage type, your agent will start off by asking you to identify or list all of the farm personal property items you want to get covered. See the exercise below, Try This: Create a Priority List to help you prepare. Once you have your list of FPP items you want covered, then you will be able to decide whether to cover everything with blanket coverage, scheduled coverage, or a mix of both.
Scheduled coverage is generally the cheaper and more straightforward way of insuring your farm personal property. Property items get listed using a scheduled inventory form where you work with an insurance agent to list the items you want to insure and then assign an individual replacement value, which is what you will be paid (minus deductible) if it is damaged or lost. For each piece of equipment listed, you generally need to provide the price, year, make, model, and serial number. Smaller items such as tools, supplies and miscellaneous equipment that are valued at lesser amounts may be grouped together in the schedule. Scheduled coverage typically pays up to the value of the item listed on the schedule of the policy. Scheduled coverage can be useful if you are trying to control total premium costs by limiting the number of insured items or if you want to make sure you have enough coverage on a specific FPP item. If an item is not scheduled, it’s not covered unless you also secure a blanket policy.
Blanket coverage is more flexible, insuring your farm personal property inventory as one unit under a single dollar amount. This means items do not have to be listed individually to be covered, but your insurance agent will come out to your farm to assess your items to ensure that the inventory you do have is valued appropriately. Through this process you will land on an appropriate dollar amount of blanket coverage (e.g. if your property items are valued at $50,000, you don’t need $100,000 of blanket coverage but you do need $50,000!). This dollar amount is the limit for what the insurance company will pay out on a claim (minus deductible).
The benefits of blanket coverage are twofold. First, blanket coverage includes wiggle room for new items to be covered even if they weren’t accounted for in the original inventory. Second, blanket coverage allows for flexible assignment of coverage across property items in case actual replacement costs for an item are higher as long as the claim falls within the blanket limit amount.
Let’s take an example: Farmer Mika has $50,000 blanket coverage. Unfortunately, she loses her $25,000 tractor in a bad storm and she finds it will actually cost $30,000 to replace it due to inflation. Even though the replacement cost is higher it may still be covered as the cost falls within the blanket limit.
The down side to blanket coverage is that it can be more expensive than scheduled coverage. Depending on a farmers’ goals, the additional expense may be worth the flexibility. Keep in mind that both scheduled and blanket coverage can be combined in one policy to maximize cost savings and coverage. This is something your insurance agent can help you explore.
Assessing Your Coverage Needs
So far you have learned that:
- Structures, equipment and machinery, and inventory can be insured as farm personal property (FPP) through farm insurance policies
- The three basic elements of a property policy are (1) listed property that is protected from (2) covered perils (aka risks) at (3) an insured value
- FPP can be insured for its replacement cost value (usually more expensive) or actual cash value which equals the cost of replacement minus depreciation
- Coverage can be extended as blanket coverage (more flexible) or scheduled coverage (more tailored)
- And that coinsurance provisions typically require FPP to be insured for at least 80% of the item(s) value otherwise a penalty is charged
Now it’s time to assess your current coverage needs so that you can take action and increase your resilience in the event of a loss. You can do this by making a list of priority FPP items you want to make sure are covered and then identifying what kind of coverage you might want, using the exercises below. Afterwards, you’ll be well positioned to discuss your needs with your agent!
- Pull out your current property insurance policy. How does it compare? Do you have appropriate coverage for your farm personal property right now? This may take working with your agent to decode your policy, or you may be able to decipher this on your own. If the answer is yes, that is a legal resilience win and you should take this moment to celebrate! Make a note on your office wall or calendar that you have the property coverage you need right now. If you find you don’t have the coverage you need or you’re not sure, that’s okay. You are on the path to increasing your resilience by learning this information and taking a hard look at your property coverage needs. Continue to the next question.
- Do you need to get farm insurance coverage for your priority items? If your answer is yes, contact your insurance agent to ask them about your farm insurance options, referring to your priority list of FPP items and perils of concern to help guide your conversation. You can also articulate your interests in blanket and/or scheduled coverage to assist the agent in better meeting your interests. If your answer is no, continue to the next question.
- Do you need to clarify or extend your coverage? If your answer is yes, contact your insurance agent to review and/or improve your current farm personal property policy to better meet your needs.
Tips for preparing to meet with an insurance agent:
- Bring any current policies that you have with you when visiting an insurance provider for new coverage, to ensure that you are comparing like information.
- Ask about bundling policies to support cost savings. If you are adding on farm structure insurance to your homeowner’s policy, for example, ask your agent if this bundling provides you with any cost savings. Usually agents will proactively share when additional policies can save you money, but if they don’t, you can be prepared to ask.
Ask about practices that could contribute to cost savings, such as installing fire alarms in the barn and employee equipment training to promote safe handling of the machinery.
- Remember: you have the power to ask for what you need!