5 Common Farm Insurance Mistakes and How to Avoid Them
Farming is a complex and high-risk business endeavor, which faces everything from unpredictable weather patterns to fluctuating market prices. Insuring yourself and your operation properly helps protect your livelihood. However, farm insurance is largely misunderstood, causing farmers to make mistakes with their policies, potentially risking financial ruin in the event of a loss. To help you avoid pitfalls, here are five common insurance mistakes farmers make and tips to help you avoid them.
1. Not Understanding Coverage Needs
Farm insurance is not a one-size-fits-all solution, and one of the biggest mistakes farmers make is not fully understanding their insurance needs. The coverage you require will vary depending on the type of farm you operate, ie. Dairy, row crop, livestock, etc.
How to avoid this mistake:
- Begin with a top-down analysis. Spend the time to assess every aspect of your farm. Include crops, livestock, equipment, buildings, even future operational goals. Also consider additional risks associated like natural disasters, breakdown of machinery, and loss of income if and when you face an unfortunate event.
- Work with an experienced insurance advisor who specializes in protecting farming operations, as they can tailor your policy to your specific needs.
2. Underinsuring Property and Equipment
Are you purchasing insurance based on last year’s financial figures? How about a rough estimate of your property’s value? Like all asset classes, the values of your farm’s assets fluctuate regularly, which may leave you with inadequate coverage when you need it most.
How to avoid this mistake:
- Regularly review and update your insurance policy. Most farmers are familiar with talking with their agent annually, but these reviews should also take place following major changes such as new equipment purchases or operational expansion.
- If unsure how to value property or equipment, consider getting an appraisal or ask your insurer for help with determining appropriate amounts. This ensures your coverage matches the value of your property.
3. Disregarding Business Interruption Insurance
With an endeavor as inherently unpredictable as farming, unwelcome events like severe storms or breakdowns of equipment can largely dent your income. Business interruption insurance can help cover the expenses you may otherwise struggle with during periods of lost revenue.
How to avoid this mistake:
- Analyze your farm’s cash flow to determine how long it can remain sustainable without income. Doing so helps you understand how much business interruption coverage would be necessary.
- Include business interruption in your overall farm insurance plan to ensure adequate coverage for lost income during a period when your farm can’t operate as it usually would.
4. Choosing the Cheapest Policy
The most frequently made mistake is to simply go with the cheapest farm insurance policy. Although tempting, it’s imperative you consider the actual value of the coverage as opposed to the price alone. In the long run, a complete insurance program without critical coverage gaps leads to more happiness than the short-term exuberance you feel from saving 5%.
How to avoid this mistake:
- I agree that lower premiums are appealing, yet that policy may not offer sufficient protection for your farm’s unique needs for that low cost. Find a balance between cost and the coverage provided.
- If unsure about certain policy options and the costs associated with them, ask your insurance advisor to explain what they cover until you understand the value adequately. Make sure you’re fully considering the risks of being underinsured and the potential savings when evaluating a cheaper option.
5. Failure to Review and Update Policies
As your farm grows or changes over time, so too should your insurance policy. Failing to review your policy regularly may leave you underinsured (or overinsured) as your business evolves. Whether it’s an increase in livestock, new equipment and buildings, or even winding down your operation and retiring, your insurance policy should properly reflect these changes.
How to avoid this mistake:
- Set a reminder to review your policy with your agent annually (at a minimum) or after any major changes to your farm.
- Communicate with your insurance agent when a significant change has been made, so your policy can be adjusted accordingly.
Protecting your farm starts with having proper insurance.
Farm insurance is your financial safety net in times of crisis. However, it only benefits you if you’re properly covered. By avoiding common mistakes many farmers face, you can ensure that your livelihood is protected from a variety of risks. A Richey-Barrett farm insurance advisor will work closely with you, tailoring your coverage to fit the unique needs of your farm and will follow up regularly to ensure your comprehensive plan remains updated. With the right insurance in place, you can focus on what you do best – running a successful farm, while we focus on keeping it protected.
