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5 Common Farm Insurance Mistakes
There’s nothing more deflating than calling your insurance agent about a property loss and hearing, “Sorry, that’s not covered.”
Dayton Kilgus, an agent for Compass Insurance Partners in Fairbury, Illinois, lists these five common mistakes – all avoidable – in farm insurance.
1. Current inventory updates. “On a farm, the value of equipment, inputs, livestock, and grain can vary from season to season dramatically,” says Kilgus. “It’s easy to be underinsured.”
It could trigger a coinsurance penalty, he says. That provision requires you to maintain a minimum coverage, usually 80% of the total inventory value of all covered property. “Insurance companies do this to ensure they collect adequate premium in relation to their exposure,” Kilgus says.
If you have a covered loss, your proceeds could be reduced by the amount you are below the coinsurance requirements. Even if you have a limit specified on a piece of equipment and suffer a total loss, you may not get that amount.
“Review your inventory and coverage limits with your agent at least once a year,” says Kilgus.
2. Rented, leased, or borrowed equipment. Equipment owned by a neighbor or dealer is often not insured under your existing policy.
“My dad is a good example,” says Kilgus. “He rents a high-horsepower tractor from his neighbor to pull a strip-till rig. If he accidentally damages it, it’s not covered unless he specifically adds it to his policy. Your agent should know options.”
3. Buildings you use but don’t own. The typical scenario here is a building or bin on a rented farm, and the landlord lets you store things in it.
“Many policies exclude liability coverage for buildings that you regularly occupy or rent,” says Kilgus. “If you pull a combine in and damage the wall, you’re not covered. The landlord may have coverage, but you might not want to jeopardize your relationship by relying on it.”
Your agent can add those buildings so they’re covered.
4. Undervalued buildings. The limit on your policy may reflect building costs from 40 years ago. Your coverage hasn’t kept up with the replacement cost.
“Another issue with bins, barns, and sheds is that farmers don’t include the concrete foundation,” he says. “They think a fire or wind is never going to damage concrete.” The concrete often can’t be reused because of age, technology, or damage. The same 80% coinsurance issue from point number 1 applies, and a claim may be discounted.
“Farmers always have good intentions,” says Kilgus. “It’s our job to educate them on provisions. At the time of loss, the policy wording is king, and intentions are immaterial.”
5. Operating expenses. If you have a combine fire, insurance may cover renting a combine to continue harvest. Is it enough, though?
“At one time, $1,000 or $2,000 seemed like enough to rent a machine for a few days at planting or harvest. Not anymore. I’ve seen it cost up to $50,000 to rent a combine in harvest season,” he says.
That’s one more topic to discuss with your agent.