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September 7, 2010

Insurance For Horse People: Farm Insurance Will Cover Everything Including The Tack Room Sink

Regular homeowner's insurance may not provide enough coverage for the barns and fences on your farm. Photo by Kat Netzler.

Curious about insurance for horse owners? Check out this three-part series that covers horse insurance, liability insurance and farm insurance. Sponsored by Taylor Harris Insurance Services.

Homeowner’s insurance is pretty much standard when you purchase a house. But what if the house has a 10-stall barn, riding ring and machine shed housing a tractor behind it?

Then you’re looking at farm insurance.

Keep in mind that farm insurance is separate from any liability insurance you might hold on a property. Farm insurance covers the physical attributes of the farm—buildings and vehicles, etc.—while liability insurance protects you against any lawsuits or claims made arising from whatever equine activities take place on the property. Farm insurance helps protect you from financial loss if something unexpected—such as fire, windstorm or other covered loss—happens.

E. Sue Bopp, of the EMO Insurance Agency, recommends thinking about insurance while you’re farm shopping. “If you’re buying a farm, ask who insures it now,” she said. “The real estate agent would be your resource for estimating the costs for that. Especially if you’re buying outside your current state, you’d want to know what company they use and how much the insurance costs them every year.”

It might also be helpful to start with the existing insurance company for a quote, since they know the property.

How Does Farm Insurance Work?

While an appraiser sets the value of your home during the purchase process, an insurance adjustor assesses the value of your property’s other buildings.

“They measure the buildings, and they do cost estimators—it goes into a computer program and comes out with a value. It’s straightforward,” Bopp said.

There are three basic levels of coverage in a typical homeowner’s policy.

  • Replacement Cost: This coverage pays the full amount of assessed value to repair or replace the damaged area of the home without regard to depreciation. You must insure your home for at least 80 percent of the replacement cost, and replacement cost must be indicated in your policy.
  • Guaranteed Replacement Cost: This policy pays up to 125 percent of the amount of insurance you have on your home if you need to repair or replace it. This coverage helps when a storm does widespread damage and pushes the cost of labor and materials above the amount it would normally cost to replace your home.
  • Actual Cash Value: This basic home insurance reimburses you for covered losses to your home up to current value; the age, condition and worth of your home are taken into account when settling losses.

“Most people insure for replacement cost, but keep in mind you have to insure for 80 percent of the value to get full replacement cost,” Bopp said. “For example, if you had a $100,000 house, you’d have to insure it for 80,000 to get replacement cost. If it burns to the ground, you’d get $100,000, not $80,000.”

The cost of your policy will depend on the value of your property, your location (state and county) and your deductible.

Especially on large farms, it may be a good idea to have separate policies on the home and the farm buildings.

“If I have someone who has a very nice house, a half-million or over, I might advise them to insure the house with one company and split the barns and the rest with someone else. That lets you get the coverage you want,” Bopp said.

Farm Insurance Dos And Don'ts

  • Keep in mind that a typical farm or homeowner’s policy does not protect against flooding. You can buy a separate flood policy, however, in addition to your base policy. The cost will depend on your flood risk.
  • If you’re improving the property—adding a barn or an indoor ring, for example—keep your insurance agent informed of the additions. “If you’re building, it’s possible to get a builder’s risk policy,” Bopp said. “This covers the material and structure while under construction. Until it’s 100 percent complete, it can’t be insured for the whole value, but this would protect you until it’s done.”
  • Automobiles such as trucks, tractors, all terrain vehicles and golf carts can be covered under your farm policy. These vehicles must be used in connection with the farm activities, not as personal vehicles, which must be insured through a personal vehicle policy.
  • You can also purchase additional coverage to cover your fencing, especially if you have a significant investment in expensive board fencing.

Common Questions

Q. How difficult is it to find an insurance company that holds farm policies?

A. A typical, large-scale homeowner’s insurance company might not tailor policies to small farms. You might be better off getting farm insurance quotes from a smaller agency in a rural area. Ask around and see who the neighbors use. Many horse insurance agencies such as EMO also offer farm policies.

Q. Why is it hard to find insurance near a coastline?

A. With natural disasters such as hurricanes battering the coasts of many states, or earthquakes, some insurance companies have begun putting a cap on their exposure in those areas, limiting the number of policies they write there.

“It depends on the state. A lot of underwriters won’t take a risk on properties close to the coast, even out of Florida,” Bopp said.

“There are parts of Florida where most insurance companies, given what’s happened with the weather, are at capacity. They’re only going to take so many risks in Florida. If I have someone sell their farm in Wellington, that opens up another farm to coverage. But if I was buying a farm in Wellington, I would first find out who insures in Florida and what the premium might be. Someone’s who’s moving from Virginia to Florida would have complete shock about how much insurance can be.”

Q. What factors influence my premium and my ability to find insurance?

A. One thing insurance adjustors consider carefully is a property’s distance from a fire department. “If it’s too far away, you might get some underwriters that won’t take the risk,” Bopp said.

And the materials used in constructing your barn and other outbuildings also count. Masonry or steel buildings will cost less to insure than wood frame.

Updated and to-code wiring and plumbing will also earn you a discount, as will lightening rods, smoke detectors, a sprinkler system and CO2 sensors.

Contrary to popular belief, where your hay is stored does not affect the policy.

Horse Care