The American agriculture industry may have spawned some mega-farms, but small and family-owned operations still comprise the lion's share of the market - about 90 percent, according to U.S. Census statistics. With so much product and property to protect, insurance experts stress the importance of adequate coverage. This applies not simply to land, buildings and crops, but to owners and employees as well.
The criteria for choosing certain policies fluctuate widely from business to business, as do the premium costs. For this reason, consulting a licensed agent or broker with solid experience in farm coverage is a good idea - and so is doing some homework before sitting down to talk. Start by reviewing the list below, which describes key insurance products "agri-preneurs" would do well to investigate!
While coverage under general agricultural insurance policies varies among providers, the following products usually come with the package:
- Property and casualty insurance (P&C) protects physical property such as farmhouses, outbuildings, equipment and household belongings against certain causes of loss or damage, among them fire, lightning, hail and tornados. P&C also provides coverage against losses due to theft and vandalism, as well as liability protection, in some cases.
- Liability insurance provides coverage when an employer unintentionally causes an employee or other individual injury, or if that person's property is damaged or destroyed.
- Medical payments coverage reimburses up to a certain amount for medical expenses incurred by individuals hurt or incapacitated on a farm owner's property. In some cases, protection can extend off-site, although this provision does not apply to the policy holder and members of his household.
- Additional living expenses coverage pays for costs incurred when the insured and members of his household must live elsewhere because the primary dwelling has sustained covered damage. For instance, the insurance provider will pay motel or apartment rental fees while a lightning-struck home is under repair, or when fire has rendered a structure uninhabitable.
Crop and Livestock Insurance
The United State Department of Agriculture Risk Management Agency subsidizes insurance coverage for more than 100 crops, covering approximately 290 million acres of farmland. Regulations now include livestock as well. Here is a rundown of available products:
- Yield-based insurance coverage includes:
Actual Production History (APH). These policies insure against losses due to natural causes such as hail, drought, extreme moisture, wind, frost, disease and insects. Farmers choose the amount of average yield (usually 50 to 75 percent) to be covered, as well as the percentage of predicted price (55 to 100 percent of annual RMA-estimated crop price). When the harvest runs less than the yield insured, the farmer receives an indemnity calculated on the difference.
Group Risk Plan (GRP). A county index provides the basis for determining loss in this policy category, rather than an individual farm's loss records; so a farmer receives an indemnity when his harvest falls below his selected trigger level. While GRP coverage requires less paper work and is cheaper than APH, it works best for owners whose losses usually follow their respective county's pattern.
Dollar Plan. The amount of insurance rides on the cost of growing a crop in a specific location, with the insurance's maximum dollar amount stated on the actuarial document.
- Revenue insurance plans include:
Adjusted Gross Revenue. AGR policies insure a farm's entire revenue instead of an individual crop's by guaranteeing a percentage of the average gross, including a small portion of livestock income.
Crop Revenue Coverage. CRC offers protection based on price and yield expectations, paying an indemnity when actual gross revenue falls below a revenue guarantee.
Group Risk Income Protection. GRIP pays an indemnity only when the average county revenue for the insured crop falls below the farm owner's chosen revenue amount.
Income Protection. IP protects farmers against decreases in gross income when a crop's price or yield is less than early-season projections.
Revenue Assurance. RA provides coverage based on the farmer's selected dollar amount of target revenue.
- Livestock insurance includes:
Livestock Gross Margin. LGM offers protection against the loss of gross margin, which is calculated by subtracting feed costs from the livestock's market value. Animals covered under this policy include cattle and swine, with eligibility limited to certain states.
Livestock Risk Protection. LRP polices insure against falling prices on the market, thus protecting farmers for the insured period. Livestock specified in this coverage are swine, lamb, feeder cattle and fed cattle.
Catastrophic Coverage. CAT pays 55 percent of a crop's established price on crop losses exceeding 50 percent. While the federal government covers premiums, farmers must pay a $300 administrative fee for each crop insured in each county, with some exceptions for destitute owners. Not every policy offers CAT coverage.
Even when property, personnel, revenue and products fit snugly under a policy blanket, farm owners need to consider other areas that need protection. Here are a few additional product categories worth investigating.
- Commercial Automotive Insurance. Standard auto insurance policies or general farm insurance may not provide sufficiently for business-owned vehicles. In addition to liability and physical damage coverage, which includes collision, comprehensive and specified perils, industry analysts recommend personal injury protection, as well as coverage for uninsured motorists.
- Business Equipment Insurance. Farmers dependent on leased equipment should make certain that existing insurance policies offer full replacement coverage for losses. If not, a separate plan may be in order.
- Workers Compensation. Mandated in most states, these policies provide economic relief to farm workers injured on the job, including monetary allotments for medical treatment and compensation for lost time.
- Key Man Insurance. Particularly suited to a small-farm venue, this insurance policy on the owner's (or other key administrator's) life provides revenue and time for survivors to devise a plan to preserve the business, in the event of his death. Because the farm is the beneficiary, the business pays policy premiums.
- Health Insurance. A subject that causes considerable worry among self-employed individuals, it's important to note that group plans, which require two or more employees for a business to qualify, do make premiums easier to manage. Also, many insurance providers are striving to make health insurance generally more affordable for small companies. Finally, the Affordable Care Act now offers a range of products suited to small business owners with no employees.