“With equipment being bought, sold or traded, it’s easy to end up underinsured really fast,” says Mike Bramwell, an insurance agent in Onalaska, Wisconsin."
"But the reality is Bramwell hasn’t met too many farm owners that call him right away when they pick up a load of cattle or trade a piece of equipment. He says, “If you had a loss, most companies aren’t going to count every bolt in the bolt bin, but if you have one four-wheel-drive tractor on the equipment list and they walk in the shed and there are two of something, questions will probably start to come up.”
Farm insurance policies usually consist of blanket coverage, where all property (livestock, structures, equipment, etc.) is insured in one lump sum with premiums based on the dollar amount of overall coverage. However, Bramwell says, now that you have some tractor electronics on board, you may need to revisit some insurance decisions.
Equipment schedules
In addition to blanket coverage, most farms have individual items or groups of items covered under a separate policy or listing, with specific benefits and charges tied to the list. A producer might have an equipment schedule, a livestock schedule, a seed and grain schedule or a schedule with simply one classic tractor on it. Schedules can be as simple or as complicated as warranted.
For instance, in the case of on-board electronics, the blanket policy may cover this loss, but then again it may not. Bramwell says the variations among insurance companies and policies are many, so a careful reading of this portion of the policy would be prudent. Some blanket policies may cover these losses, and others may not.
Sometimes coverage depends on whether the electronics move from implement to implement or whether they are integrated into the implement. Examples of perils that electronics might be exposed to could include data loss or electrical incidences.
Bramwell says, “Even within the same agency there can be varying insurance companies represented, so it’s important to watch for those specifics and know how, or to what extent, the new technology is covered.”
On the producer’s end, one school of thought may be, “Well, it’s obsolete in three years anyway, so what’s the point?” And that certainly needs to be taken into account when determining value to prevent over-valuing a technology. On the other hand, what would replacement cost be? While electronics may depreciate quickly, it’s as important not to be overinsured as it is not to be underinsured.
Bramwell says, “Insurance changes, so what a producer might have heard 30 years ago or even six months ago might have changed, and their perceptions of what they’ve been told could be different from the actual.” He says it’s common for misunderstandings to arise from what a producer thought was covered to what was actually covered.
Another schedule that is often times engaged is an equipment “ingestion” schedule. Bramwell says, “If you suck a rock or fence post into a mower, baler, swather, TMR mixer or combine, a policy might not have coverage for that by itself. So sometimes those items have to be scheduled on their own, and then that will afford it coverage under that circumstance.”
And it’s important to insure the implement at its peak price for the year, not in terms of market cost, necessarily, but in terms of what it would take to replace that piece during the peak of harvest rather than in February when it’s sitting in the shed.
If a baler is down for two weeks during harvest when the hay is ready to go, then coverage needs to include costs to rent another baler or have the crop custom-baled to prevent crop loss. Bramwell says this coverage generally doesn’t cost much in additional dollars – hundreds maybe, but not thousands.
Seasonal schedules
Feed or grain storage, as well as stored seed, fertilizer and chemicals all have seasonal highs and lows. One way to reduce overall insurance costs can be to reduce the blanket coverage and take advantage of seasonal coverage. Producers can pick the peak season for commodities and insure at higher rates during those seasons, then drop coverage amounts when the commodities are moved from storage.
As an example, if a farmer purchases seed and chemical in early November to take advantage of discounts or maximize cash flow, insurance can be maximized November to June when the seeds are planted, and fertilizer and chemicals are applied. Coverage then drops off for summer months.
The same principle works for stored feed supplies. As an example, corn stored on the farm may need higher coverage from October until it’s sold in May. Or maybe the hay stored for winter feed, when it will need higher coverage, will be largely depleted by April, when coverage can be dropped.
These stored commodity swings can be charted with a simple bar graph to determine peak seasonal increases and drop-offs, and the insurance policy can be adjusted to take advantage of the seasonality.
Of the seasonal schedules, Bramwell says, “These can be more labor-intensive, but if done the right way it can save some money.”
Semi-truck coverage
Some equipment, like semi-trucks or tractors, are covered on auto policies and there can be some money saved there if you look at usage in a seasonal way. For instance, if a producer has eight trucks with eight trailers, then during harvest they’re likely all running. But during the rest of the year, maybe only four are running.
You might keep some comprehensive coverage on those trucks that sit, but otherwise they could be taken off the farm policy. Bramwell encourages producers to look at equipment usage throughout the year, and if equipment sits during a large portion of the year, then look at possible cost savings there in terms of coverage decreases.
Borrowing or renting equipment
Producers should also be considering coverage in the case of borrowing or renting equipment. For instance, if two brothers farm and one owns the planter and one owns the tractor, you want to make sure you have enough coverage if something happens for when you’re the one borrowing or renting.
Make sure there will be money to replace or rent a machine if that piece of machinery goes down during peak, time-sensitive use. Most policies use either a per-hour limit (based on machine hours) or an actual dollar amount that will be available.
Some policies on rental replacement might also be based on meter hours or separator hours (on a combine) as opposed to a dollar amount limit.
What happens if you’re on rented land? It’s the same as if you’re driving down the street. The flexibility of the farm policy is that the blanket or scheduled equipment is covered as it moves around from farm to farm.
So if you’re covered there, then you’re covered on a farm that you’ve rented. On the liability side, it’s beneficial to have that rented farm listed on your policy.
Valuing equipment
As producers prepare equipment schedules or determine equipment value, how should they arrive at a value? Bramwell says, “Equipment prices can follow commodity prices, so the price for an implement may go up or down relative to what commodity prices are doing, and you don’t want to be overinsured."
"So yearly, you need to review the pricing of your blanket and scheduled items and make sure you’re not overinsured on equipment. If you bought it new, but it’s now three years later, then it’s not worth what it was and that should be adjusted on the schedule."
"On the other side of that coin, if you got a great deal on some piece of equipment, make sure you’re not insuring it for that “great deal” amount but are insuring it for what it would cost to replace it."
"And you need to insure to replace it at its peak value – for instance, if you bought a combine in April at off-season prices but it blew up during peak harvest season, what would it take to replace that equipment right there in the middle of harvest? That’s the amount you want to insure for.”
Annual updates are recommended but if producers can’t do that, Bramwell encourages them to at least get a copy of the equipment list and add and subtract equipment bought or traded, and take a look at the values to make market adjustments.
In times of tighter profits
Recognizing that farming margins are tight, Bramwell offers a decision tool to determine whether producers can prudently reduce coverage or not. “The whole plan of insurance is to defer risk. So if you’re in a situation where you can’t risk a $30,000 or $230,000 loss, then you pay an extra couple hundred a year to make sure someone else is on the hook for it, or to defer the risk to the insurance company.
That’s helpful for someone who’s newer in the business or doesn’t have a deep pocket built up. If your cash flow is really tight and you can’t afford to take a hit, then that’s an argument for not decreasing your coverage; you can’t afford to decrease it, someone else has to share the risk.” He adds, “Claims don’t just happen when times are good; they happen anytime.” 
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Lynn Jaynes
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- Progressive Dairyman
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