Farming is a risky business. From the ups and downs of the market to the potential for disease and natural disasters, farmers have to have some risk management tools to protect their investments. Insurance is one of the most common risk management tools farmers and agriculture business owners take advantage of.
1What does it protect?
Insurance protects the farmer or agricultural business owner from claims and lawsuits resulting from personal injury or property damages due to accidents related to your farm business. Insurance also helps cover unexpected losses of crops or livestock in extreme weather situations, disease and pest pressures, fires or other disasters.
2How does it work?
Insurance companies collect premiums contributed by individuals and invest these funds. The proceeds from these invested funds are then used to pay for losses experienced by anyone covered by one of their insurance policies. In this manner, large amounts of money can be available to any one person in the group that experiences a loss covered by the insurance policy.
Each policy owner has a unique risk potential, which is reflected in premium pricing. The higher the potential for loss, the higher the premium. Insurance companies must also factor in their cost of business and overhead expenses.
“Insurance is not a tool to make money, rather it is a tool to help compensate an individual or business for losses that might otherwise cause a financial disaster,” according to a Cornell University Study.
3Find an agent
It’s important to find an agent you are comfortable working with, who understands agriculture and business, and can help you reduce your potential for risk. Ask your neighbors who they recommend and don’t be afraid to shop around. Get quotes from three or four (or more) potential agents and ask lots of questions if you don’t understand how something works.
Sources: Cornell University College of Agriculture and Life Sciences.
Next week: Farm and Dairy will highlight different insurance options for farmers throughout December with liability insurance up next.
(Farm and Dairy is featuring a series of “101” columns throughout the year to help young and beginning farmers master farm living. From finances to management to machinery repair and animal care, farmers do it all.)
More Farming 101 columns:
- How to understand and use Ohio’s CAUV
- How to utilize the Pa. Clean and Green Act
- 9 tips for filing farm taxes
- 8 reasons record keeping for taxes is essential
- 5 tips for post-harvest storage
- 7 tips for family meetings on the farm
- 4 tips for balancing your farm and family
- 4 tips for communicating on the family farm
- 4 tips for firing an employee
- 6 tips for keeping good farm help
- 4 tips for recruiting farm labor
- 5 general farm labor laws
- 4 tips for employing minors
- 4 tips for PTO safety
- 5 things young farmers should know about finances
- The farm balance sheet
- 5 items for your farm’s cash flow statement
- Personal and business records: Keep them separate
- What to include in your farm business plan
- How to approach a lender: Tips for getting a farm loan
- How to use microloans to get your farm started
- Saving for the future: 6 tips for young farmers
- How to create a farm safety kit
- 5 tips for child safety on the farm
- 4 tips for transporting livestock
- 5 ways to better understand tractor stability
- 6 farm equipment hacks