Most agricultural producers take out insurance on their farm buildings. The biggest challenges are figuring out what those buildings are worth – and how much you can afford to lose.
“One of the first conversations we would have with a producer we’re working on insurance with is, how much risk can the producer who self insures bear?” said Dan Childs, senior consultant and agricultural economist with the Samuel R. Noble Foundation in Ardmore, Okla. “For instance, if you have a structure worth $50,000, how much of that can you self-insure if a portion, half or all of it, is blown away or destroyed in some form or fashion? There’s kind of a perception among us as producers that, you know, my neighbor’s got insurance on his barn, and that’s something that we’re supposed to do. We forget to consider our financial condition, you might say, in coming up with an idea of how much we can self-insure.”
By self-insure, Childs means a deductible; the more of a deductible you’re willing to absorb, the lower the premium and the more cash you’ll have for the operation.
“If a producer thinks it would not jeopardize the operations of the business if I had an across-the-board $5,000 or $10,000 deductible on my structures, it’s going to reduce my insurance premiums each year by an equal relationship to how much I can self-insure, versus how much I want to pay someone else to take that risk instead of me,” Childs explained.
The producer also needs to come up with a value for each building. Usually, the condition of the building is assessed as “Excellent,” “Good,” “Fair” or “Poor.” “Typically you take into consideration depreciation of the facility,” Childs said. “You’re not going to get insurance to pay $50,000 for a $20,000 building when it’s gone. They’re replacing what you had, not what you want to have.”
You can also insure machinery inside the buildings.
“Each (piece of machinery) would be itemized,” said Childs. “If you had a combine, grain auger and tractor, you would try to come up with a value for the particular condition that asset is in.”
Identification specific to the piece of equipment is helpful, such as a Vehicle Identification Number or serial number.
If cattle are insured they’ll also need individual identification, like a tag number, tattoo number or brand number.
A homeowner’s policy will cover liability up to a certain amount if an animal gets out and is hit by a car; you can also take out coverage on high value animals, like a bull or a show animal.
Michelle Schaffner, underwriting manager for Missouri Farm Bureau Insurance, said in addition to the values of the buildings, the agent will want to know its dimensions, uses and type of construction.
“And maybe how old the roofs are,” she told OFN. “It would be very helpful if they had some kind of idea of either the purchase price or, more specifically, what it would cost to replace that building if it were destroyed somehow. Some insurance companies will have tables and tools to help them determine that, and that’s why it would be good for them to know the square footage and the type of material in construction of the building, because that’s what those tools would ask for.”
The location of the building is factored into the insurance rating. Schaffner said what’s most important is how close the buildings are to the local fire station. In addition to fire, the policy will cover such perils as windstorms, hail and lightning. Some insurance companies track weather patterns and historical storm activity, and consideration of previous storms and the paths of storms may be involved in the ratings.
