How Private Insurance Products Can Benefit Your Farming Operation

Jul 31, 2023

When farmers talk about insurance, the conversation typically centers around crop insurance exclusively. While this is important and certainly should be part of your risk management strategy, your crop is not the only asset exposed to risk.

In this article, we’ll walk through some of the other types of insurance you’ll need to consider, and how to evaluate which private farmland insurance products will most benefit your operation. 

Why should you insure your farm operation?

Let’s start with the basics: why should you insure your farmland? At the end of the day, your farm is a business, and businesses of all kinds are exposed to risk by their very nature.

In addition to the financial risks inherent to any business, farming includes additional, unique risks:

  • Weather damage & impact on crop productivity

  • Volatile commodity markets impacted by global climate and geopolitical factors

  • Expensive equipment that can be difficult to repair or replace

  • Heavy cost burdens and debt incurred by farmers on a cyclical basis

In farming, you could devote time and financial resources into the business, and a derecho or drought hits, impacting your chance to break even.

2023 specifically shows an increase in the breakeven price for corn and soybeans, driven primarily by high input and production costs. Although 2023 promises a better outlook than 2022, margins are narrower than many farmers are comfortable with.

This means that even “minor” risks could severely impact your operation’s ability to stay afloat. As such, you need to consider insurance that protects various assets at your disposal:

  • Farmland 

  • Machinery or equipment

  • Livestock & crops

  • Farm products 

  • On-farm buildings (incl. grain bins)

Crop insurance alone will not protect you from inherent farming risks. When considering which insurance products you need to purchase, look at the whole of the operation to determine exactly what you need. 

Private insurance products vs. USDA insurance

Nearly every U.S. farmer is familiar with the USDA Risk Management Agency (RMA) and the various crop insurance products they offer. Since the 1930s, this program has been instrumental in protecting farmers against losses due to adverse events including:

  • Drought

  • Excess moisture

  • Damaging freezes

  • Hail

  • Wind

  • Disease

  • Price fluctuations

From 2000 to 2021, the Federal Crop Insurance Program (FCIP) covered 82% of eligible acres among producers of barely, corn, cotton, flaxseed, oat, peanut, potato, rice, rye, sorghum, soybean, sugarbeet, sugarcane, sunflower, sweet potato, tobacco, and wheat. USDA also provides coverage for certain types of livestock. 

However, while crop insurance is an invaluable risk management tool for agricultural producers, it covers, as the name suggests only crops. Additionally, although most crops are covered under FCIP, it is by no means universal. Certain specialty crops are excluded from the program, although RMA regularly conducts pilot tests among new crops.

If you want comprehensive coverage for your entire operation, namely land, buildings, and equipment, you have to go beyond public crop and livestock insurance. This is where various private insurance products come into play. 

What types of private insurance products are available to farm operations?

Private insurance for farm operations comes in all shapes and sizes. You can start with basic, bare-bones coverage, then add additional coverage depending on your needs. And these policies can become quite detailed, including several dozen categories of perils to cover. 

Under most private farm insurance plans, only personal property directly related to the operation are covered under your plan. Generally, these are broken down into the following categories (although, keep in mind the exact breakdown may vary depending on your insurer): 

  • Dwellings & on-farm structures

  • Farm machinery and equipment

  • Livestock

  • Farm products such as seed, silage, animal feed, fertilizers and pesticides

  • Liability coverage

Here are some of the private insurance products you should adopt to protect your farming operation from undue risk.

Homeowners insurance or dwelling coverage

Although your crops are covered by USDA, your home is not. Most farm insurance plans will include the option to insure your dwelling for both owner-occupied and employee-occupied dwellings. Generally, a good plan will cover 80% or more of the replacement cost value. 

If you can’t cover your dwelling under your plan, you’ll need to purchase homeowner insurance separately. 

Equipment coverage

Replacing or repairing damaged farm equipment can be expensive, and you don’t want to slow down the operation because you can’t cover the cost. Most private farm insurance products will cover financial loss or damage of machinery due to covered perils.

This includes the whole range of equipment, including:

  • Tractors

  • Combines

  • Cotton pickers

  • Planters

  • Field equipment

  • Hay rakers

  • Portable irrigation equipment

  • Portable structures and fences

In some cases, if you use a truck for farm work, you may be able to bundle a commercial auto insurance policy into your farm insurance policy for ease of payment. 

Farm structure coverage

In addition to your primary dwelling, you’ll need to insure other structures on your property. These can include barns and other storage, grain bins, livestock housing, etc. Typically, fencing is not included under farm structure coverage. 

Livestock coverage

In the event that your livestock are killed or injured as a result of a covered peril, you can purchase coverage that generally covers anywhere from 2.5-5% of the value of the animal. 

Farm products coverage

You can also purchase coverage for feed, grain, seed, and similar items. However, the coverage only lasts while the products are stored—so crops and seed that’s already in the ground won’t be covered. 

Liability coverage

Because of the inherent risks at hand in running a farm operation, every farm insurance policy will require liability insurance. Generally, this will cover:

  • Bodily injury

  • Medical expenses

  • Property damages

  • Attorney’s fees associated with covered incidents

Additionally, if you employ anyone in your farm operation, you likely will have to purchase insurance for potential employee liability situations and workers compensation. Some states may also require you have a workers comp policy in place if you have two or more employees. 

Final thoughts on private insurance products for farm operations

Although USDA provides robust crop insurance products, they only cover part of your farming operation. A robust risk management strategy should cover more than just crops—buildings, equipment, farm products, and more. 

The better you protect your operation from risk, the better prepared you’ll be for whatever the market and Mother Nature throws your way. What’s more, if you plan on leasing out your farmland, you and the farmer know exactly what to cover in your rental agreement. 

Are you looking to lease out your land? Let CommonGround help you find and vet new farmers—and we’ll make sure your agreement covers all the bases, including insurance. Contact Trevor Froehling, CommonGround Insurance Group Crop Specialist for more information - trevor@commonground.io or 815-883-1033.