Key differences between Farm and Business coverage
My entire career has been spent in community banking while my husbands has been in insurance.
We often joke with folks about our exciting family dinner conversations and as you can imagine we frequently bounce thoughts and ideas off each other. While I was preparing for this article, we happened upon the topic of farms progressing and changing their business model. Not only does this impact the financial side but also insurance needs must change as well.
When you have a farm, you are typically covered on a policy specifically for farms called a Farm Liability policy, whereas a business covers themselves against Bodily Injury and Property Damage on a Commercial Liability Policy. While the two are essentially the same, let’s identify some of the key differences.
Coverage
The commercial liability policy covers the business regardless of what its operations are where the claims occur, whereas the Farm Liability restricts the coverage to only applying to specific operations and locations. The Farm Liability covers a farm only for Farming and would exclude coverage for business pursuits, professional services, renting property out to others, and custom farming. To summarize: the Farm Liability defines what “farming” is, covers you only for “farming,” and then it adds a bunch of exclusions to make sure that in case we thought that some other activities might count as farming; no, they’re not. Also, the Farm Liability excludes coverage if it arises out of a location that is not listed on the declaration. For example, your farm buys a new piece of land and you put cattle on it, but don’t add it to your farm policy, there is no bodily injury coverage or property damage coverage for that location.
Policy Limitations
Farm liability rates are based on acreage, not gross sales, payroll, or employee count like commercial policies are. One benefit of the Farm Liability for one, it automatically includes Comprehensive Personal Liability (CPL), so if you live on the farm the Farm liability also acts as your Commercial. This means you don’t have to go find a Homeowners policy in addition to the Farm. Also, if you are a farmer that does not or will not add any other business pursuits, this is the perfect coverage for you! It is inexpensive and sufficient. The problems with the Farm liability and its exclusions is the fact that the modern farmer does much more than just farming. The modern farmer tends to add in those excluded business pursuits- such as a pumpkin patch or large-scale crop spraying, the list goes on. And many farms are buying products from other farms and reselling them, whether wholesale or in a retail shop.
The good news is it is quite easy to get the modern farm and all its other business pursuits covered. The way it’s done, for those that are interested, is through a combo of 1) adding a separate commercial policy to supplement the Farm policy and cover the non-farm operations or 2) write the entire policy on a commercial policy. The second method may make it more difficult to insure the personal liability exposures of the farmer that lives on the premise. But even then, the solution is likely as easy as getting a separate Commercial. And if the farm is a partnership, LLC, or corporation (as opposed to a sole proprietor), then the commercial may have to be written separately from the start, which is usually easily doable. It may not be as cheap as the Farm policy but will leave you covered without the worry of an unexpected coverage gap.
Erin Harvey is the vice-president at Lamar Bank & Trust Company in Lamar, Mo. She can be reached at [email protected].
