Farms are a business. As such, it is smart to ensure them. However, because of the nature of farming (and the unpredictable nature of the business), insurance can be expensive. But in the risky world of farming, a bad year can be all that stands between the farmer and bankruptcy. Therefore, getting insurance for your farm can be critical.
Agricultural insurance generally covers three main circumstances:
- Crop insurance for damaged or lost crops.
- Property and Casualty (P&C) insurance, which provides liability coverage if a hired hand is hurt, and potential coverage for physical property. It does not usually include livestock.
- Livestock insurance.
- Specialized insurance coverage for certain types of farming with unique perils and challenges
Your state government is a good source of information, if you are looking for agricultural insurance. Many states actually have specialized insurance companies within state government (or sponsored through the state) that cover the unique perils for that region. For instance, farmers in California might not buy coverage for hail, because it is less common there. However, in the American Midwest, if you don't buy hail coverage for your crops, you are asking for disaster.
Further, because many regions do have unique concerns within the farming community, there are often insurance cooperatives operating in a specific region. Because these cooperatives can often offer lower prices for the same insurance, it is well worth the research. Your local farming associations will often be able to point you in the right direction.
What will it cost?
In the U.S., Congress subsidizes the cost of buying crop insurance and several states provide state-funded premium subsidies. Rates will ultimately depend on your needs, risk tolerance, insurance plans, production, and location. Remember that anything which will raise risk to the insurance company will end up costing you more. You may have to make some hard decisions between your risk tolerance, and the amount of money that you could afford to lose without jeopardizing your farming business.
Benefits of Farm Insurance
If you are a farmer, your farm is your livelihood. It is also your business. Insuring it makes good business sense.
You have some good reasons to consider it, aside from the longevity of your farming business:
- Government subsidies are often offered to farmers to offset a portion of the premium.
- Increased coverage levels are offered for several crops.
- Protection for input costs and harvest values.
Keep in mind that crop insurance may serve as collateral for operating loans. Most banks and financial institutions will want to ensure that you have some kind of insurance coverage, to protect your ability to re-pay loans.
Crop insurance does what you'd expect - it insures your crop. The trick with crop insurance is to decide what level of coverage you want. Specific levels of insurance include:
- Yield-based coverage
- Revenue-based insurance
- Named-peril plans
Yield-based coverage plans
You can have a variety of levels of coverage within a "yield base" coverage plan. This insurance does what it says - it covers your crop yield, which means that if your fields don't yield as much as expected, you receive a payout.
Yield insurance can work in a variety of ways. You can buy 'individual' insurance, which covers your farm based on your farm's 'average' production. Or you can buy a 'group risk' type of insurance, which will determine yield based on the experience of the region rather than the individual farm.
If your farm produces similar to the average for your region, group risk can be a good option.
Revenue insurance plans
Revenue insurance plans insure you for expected revenue, as opposed to yield from your fields. This is a higher level of coverage, as it usually includes insurance against two factors: low yield and low market prices.
You will have a variety of options, even in this category. In most cases, you can buy this type of insurance based on your individual farm history, or based on the history of farm production in your area.
An example of this type of insurance is crop hail plans. For specific farming areas, these kinds of named-perils plans may be good value. The crop is insured against a specific kind of damage or loss, and the farmer can choose to be insured to a variety of levels, with and without deductibles.
This kind of insurance can be a good choice if you farm a single crop. In this case, there may be only certain perils that you are concerned about - and you can often find a policy for that specific peril.
The raising and farming of livestock can be just as risky as crops. You face the same kinds of challenges: changes in market prices; possible reduced yield (as in dairy farming); sickness and death of your animals.
Livestock insurance can provide you coverage in the case of these kinds of challenges.
You will need to examine your ability to tolerate risk. The more coverage you want, the more it will cost. If you can assume some of the risk, you can save yourself some money on premiums.
Can you afford a higher deductible? This will save you money. Can you afford a lower level of coverage (lower percentage of your loss covered)? This will also save you money. You have to balance this against your needs for cash flow in order to maintain your farming business.
Property and Casualty (P&C)
Every farmer should have this kind of insurance, at a minimum. What if vandals decide to take the combine for a ride? While this kind of crime is less common because now even combines have security features, it is still possible that you could be the victim of a theft or of vandalism.
Further, if you hire people to work for you, you need to have insurance in case of injury on your property. Most P&C insurance should include some kind of liability coverage. If it doesn't, then make sure that you have an umbrella liability policy which does.