Small Farm Insurance Obstacles and Considerations
Here's a great new guest post from our friend Scrapple about
based on his research regarding this topic:
1.) Proximity to fire station
When we were looking at properties we hadn’t considered the fact that insurance companies might prefer it if we were close to a fire station! Wait, aren’t fire stations all over the place? Well, turns out if you’re in the middle of nowhere they could be pretty far away. These types of things don’t cross us city-folks’ minds.
In my conversations with insurance agents it’s about a 5-7 mile distance AT MOST that they’re looking for. We’re 9 miles away, so we had some trouble finding competitive rates. In the end, a couple insurers based their rates on zip codes instead of distance from fire stations and we found a few fairly competitive offers. However, given the massive gap in rates this might be something you should consider. In some instances it added a couple thousand to the annual bill, which is quite substantial.
2.) Public water
Oh, you want water to put that fire out with? Can’t you just hook your hoses up to a hydrant or something? NO! There’s not a hydrant for MILES from our property. I was totally sold on the idea of only having a well and not having a water bill. Guess there’s some drawbacks too...
Lack of public water wasn’t nearly as big of a deal as distance from fire stations, but we did have a few agents that weren’t too happy about it.
Clearly everyone knows that a higher deductible equals a lower payment, and that a lower deductible will save you money if you have a claim. The hard part is striking that balance. When I spoke with agents I was told that the most common deductibles for farms were $500 and $1,000. That sounds reasonable, until you think about the size of claims that you’ll be making and the associated penalties for making claims.
Many insurers have a three-strikes and you’re out policy (or something similar) where if you make too many claims in too short of a time period you will lose your insurance or suffer huge price increases. When thinking about it that way, is it really worth it to make small claims? And if you’re not making small claims then why worry about a low deductible? You want to insure against the very big claims that happen very infrequently, not the small claims that happy a lot. On the flip side, you never want to be caught with a deductible so high that you couldn’t afford to pay it if you needed to. That’s why I think a modestly higher deductible than average makes sense. Maybe in the $2,000-$3,000 range, it will save a few hundred dollars per year and hopefully you won’t make claims too frequently.
You can also run some simple math on the years to break-even. If a $2,000 deductible saves you $200/year when compared to a $1,000 deductible then you’d need to make less than one claim every five years to come out ahead. Your best bet is to evaluate a few different scenarios and go with what you’re comfortable with, everyone has different comfort zones.
4.) Adulterated Farm Products May Require Separate Insurance
At our future farm one of the goals is to manufacture cheese. Nearly every farmowner’s insurance provider we spoke with refused to cover any liability after milk was produced. Once you take a farm product like milk and change it by making cheese there’s a whole different set of liabilities, especially since our cheese will be sold at retail and will be raw (i.e. unpasteurized).
One of the solutions we found was to separate the business into two parts. Instead of one LLC we’ll have two LLCs. Probably Little Seed Farm and Little Seed Creamery, or something along those lines. Basically, we’ll have one “farm” business and homeowners policy that covers everything up to milk production, including the home, land, equipment, animals and structures (except the creamery). And then we’ll have a second “creamery” policy that covers the cheese production facilities, the cheese inventory and the cheese liability. A different insurer will cover the two policies.
Things we haven’t worried too much about yet, but will most likely need:
Specific equipment and livestock coverage
Larger umbrella policy
Personal/family health coverage
Insurance is a new topic for us. We’re first-time homebuyers and the small businesses we ran previously didn’t require much insurance. What are some interesting insurance obstacles you’ve come across?
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