What is Farm Insurance?
Farm insurance is a combination of multiple common liability and property protections pooled into one comprehensive package. Farm insurance also covers personal property directly related to the farming or ranch operation.
Farm insurance is an important aspect of your business. As a farmer, you need farm insurance to protect you against any risks, but many people buy insurance without really understanding the contents of the policies they have bought.
Risks that Affects a Farmer
Farming risks should be seen as holistic rather as individual risks as often one impact on the other and they are often inter-related. As a human being you should also be prepared for the most improbable risks, because when you least expect a disaster it suddenly appears! Below are some risks that may affect a farmer:
Personal risks involve those people who are involved with the management of the farm. Such risks involve farm safety, illness or death.
Production Risk in Farming
Production risks relate to the possibility that your yield or output levels will be lower than projected. Major sources of production risks in farming arise from adverse weather conditions such as drought, freezes, or excessive rainfall at harvest or planting.
Production risk is the overall uncertainty regarding production. There are some of aspects that can affect productivity, such as crop performance, inclement weather, pests and disease, machine efficiency, etc.
Price Risk in Farming
Price or market risk refers to uncertainty about the prices producers will receive for commodities or the prices they must pay for inputs. Price risk affects farmers both in buying and selling due to the uncertainty and competitiveness of pricing. Although very little risk management can be done about “input” or buying seed, feed etc. Risk management for “output” or price risk management when selling crops and livestock can be achieved through an appropriate farm insurance policy.
Funding Liquidity Risk
Funding liquidity risk is the risk that a farmer will be unable to pay its debts when they fall due. It is the risk associated with the impact on a project’s cash flow from higher funding costs or lack of availability of funds. Manging the funding risk of a farming business is crucial.
Currency risk refers to a risk form arising from the changes price of one currency as compared to another currency. Currency risks are risks that arise from changes in the relative valuation of currencies. When money is converted from one currency to another, it gains or losses value depending on the exchange rate. If you are exporting your product you need to manage the currency risk of fluctuation.
Political Risk in Farming
These days you will find few countries around the world that are not in some form of political turmoil. When there is political instability within a country famers are always at risk. This could be where their personal safety is at stake, or that of their crops and/or livestock. For example, if there is a change of government, there could be talks of land reform where farms could be lost or the loss of certain government subsidies that used to exist under a former government but not any more.
When you are a farmer there are always legal risks involved, especially when you have entered into contractual agreements. Furthermore, there are also legal risks where food safety is an issue.
Types of Farm Insurance
Just as people purchase insurance to protect their homes, those in the agricultural business need to purchase insurance to protect everything on the farm. If you own a farm and are looking for insurance, below are some types of insurance that are available.
General Farm Liability Insurance
Let say someone is working on your farm or visiting your farm, liability insurance protects you from a lawsuit if that person gets hurt. Liability policies protect you against accidental bodily injury, medical expenses and property damage.
These policies cover accidents that come from farm-based agricultural production activities. It covers farmers, employees, guests and customers.
This is your homeowners insurance and it protects against fires, storms, theft, vandalism and other similar events. It also protects attached structures like garages.
These insurance policies generally cover accidental shooting, drowning or death due to loss of electricity. You can choose between individual coverage, where you list each animal separately, or blanket coverage that includes your equipment and structures. If you have a farm with a few animals that are worth a lot of money, talk with your independent insurance agent about individual coverage or a combination of individual and blanket. You can also get herd insurance, which covers a large group of animals.
This insurance can be the most confusing. Talk with your insurance agent about multi-peril crop insurance and crop-hail insurance. Multi-peril crop insurance protects your crops against hail, fire, floods, insects and other natural disasters. It also protects you against a loss of income due to the prices declining. Crop-hail insurance is just for hail damage.
Just as you protect your home with homeowners insurance, you need to protect your barns, stables, silos, corrals and any other building or structure that is not attached to your house.
Farm insurance can be a wonderful fall-back that can give you peace of mind knowing that in bad times, you will be covered; however you will only have peace of mind if you are sure that all the risks that you may face have been identified and you have decided which ones need to be covered.
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