Business Insurance and Homeowners Insurance are two distinct types of insurance products requiring different types of coverage.
A Farmowners Policy is a package policy that resembles a homeowner policy and is flexible enough to meet the unique needs of the farm business.
Farmowners Can Cover:
Dwelling
Other structures-a detached garage (not a barn)
Personal property –contents of the home
Additional Living Expenses- Motel to live in if the residence burns down.
Barns, Buildings, additional dwellings on the premises
Scheduled or unscheduled equipment-tractors, farm equipment, livestock, hay in the open, portable buildings or structures, silos, anything farm related.
Personal Liability-example: guest slips and falls in the residence.
Farm Liability- horse escapes it’s fence and hit by a car in the road.
Products Liability- the eggs you sell have bacteria in them that make people sick.
Equipment Breakdown
Loss of Income and Extra Expense
Animal Mortality
Major Exclusions in a farm policy:
Loss caused by enforcement of building codes
Loss caused by earth movement
Loss caused by power failure,
Loss to outdoor radio and TV equipment
The above exclusions may be “bought back” by endorsement and payment of additional premium. FLOOD is excluded, no buyback option. Must go to NCJUA to secure a flood policy.
Coverage Forms
There are three types of coverage forms-
Basic, Broad, and Special
Basic is named perils. Loss must be caused by one of these perils:
Fire and/or Lightning, Windstorm or hail, smoke, Aircraft/vehicles, Riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic Action
Broad Form Perils-the above mentioned plus breakage of glass, falling objects, weight of snow and ice, water damage-but only accidental, due to breaking or cracking of vessel containing water. Finally, additional Coverage-Collapse-many restrictions.
Special- also known as open perils. Coverage is provided unless excluded.
This is the best coverage form.
Some property is insured on an ACV basis. Actual Cash Value.
ACV is replacement cost-depreciation.
Replacement Cost- If the loss is a covered loss, and replacement cost is shown, the building, or scheduled equipment can then be replaced with a new item. Replacement cost is more expensive, but well worth the extra premium, if you can get it.
Insurance to Value-
Most property insurance contracts are co-insurance contracts. This means that a specific amount of insurance must be purchased in order to cover a partial loss.
If the replacement cost on your barn is $100,000, but you only purchase $50,000 of insurance, then suffer a $20,000 loss; the policy will not pay the full $20,000 loss.
Amount of coverage X Loss = amount payable in this case, $10,000
Replacement cost
Insurance Agents and the insured need to work together to determine the proper replacement cost. Replacement cost is determined at the time of loss.
Some of the things Insurance Companies consider when underwriting a policy:
Is the farm a profitable operation?
What is the experience of the farmer, or new owner?
Is the insured active in the business?
Is the machinery well maintained? Are the buildings in good repair? Fences in order?
Has the electrical, plumbing, roofs, air conditioning and heat systems been updated?
What are the prior losses?
How many mortgagees or liens are on the property?
Does the underwriter trust the agent?
From an interview with:
Christine Barnett, CIC, AU
High and Rubish Insurance Agency
Chapel Hill NC 27517
Office:919-913-1144
Fax:919-913-1155