Farm Insurance Policies Part #2 - Obtaining, Managing and Maintaining a Policy

Choosing An Insurance Agent and Carrier

An insurance agent is an important person on a farmer’s management team.  Selection of the agent is important to ensure the insurance policy meets the needs of the farm. The insurance agent should have a good understanding of agriculture and experience working with farms. Additionally, the agent should be able and willing to build a policy for each farm, not simply use the same template for every farm. Each farm is unique, and the farm insurance policy should be unique as well. When interviewing prospective agents, be sure to ask for their background and experience with farms and consider asking for referrals from other farms.

The insurance agent can only design an insurance policy to cover the farm activities and farm assets that they know about. It is the farm owner’s responsibility to inform the insurance agent of how the farm operates, who is involved with the farm, and the assets owned by the farm. Consider inviting the insurance agent to visit the farm to be sure they have a good and full understanding of the operations of the farm.

Each insurance agent works with one or more insurance carriers. Several services provide financial ratings of insurance carriers, and it is worthwhile to know the rating of the carrier you work with. The rating indicates the carrier’s ability pay claims, especially in times of large claims like a natural disaster. Understanding your carrier’s rating is important because the carrier has an ongoing financial obligation to you. If the carrier is unable to cover all claims in a natural disaster or otherwise fails to meet is coverage obligations, a farm covered by that carrier can be at risk. Ask the insurance agent for their carrier’s rating. Keep in mind that the same rating can mean different things depending on the service used. For example, an A+ score is the second to highest score for A. M. Best while an A+ is the fifth best rating for Moody’s.

Potential Reasons for Cancellation of Your Policy

Your farm insurance will include several reasons for cancellation. A farm insurance policy likely includes more intricate reasons for cancellation than a typical homeowner’s policy.  When cancelling a policy, the insurance carrier will generally mail the notice of cancellation to the insured at least 30 days before the effective termination date. This notice period provides time for the insured to obtain another insurance policy or to correct errors to maintain the current insurance. When a policy is cancelled, a refund is usually issued to the insured for any amount that is already paid for a period that will not be covered under the cancelled policy.

Nonpayment of Premiums.  The first reason for cancellation is the most obvious one, nonpayment of premiums. This is as simple as it sounds. The insured must make sure to make timely payments to continue to keep its insurance policy in place and at work.  Insurance carriers are required to provide written notice to the insured that premiums are past due and that the policy will be cancelled if payment is not made.

Fraud and Reckless Omission.  Other reasons that a policy might be cancelled are connected, (1) the discovery of fraud or material misrepresentations in the information given to obtain the policy and (2) a reckless omission of information given to obtain the insurance policy. These two provisions cover any incorrect information that may have been provided, intentionally or not, to the insurance agency when procuring the policy. An insurance company relies on the accuracy and validity of the information they are provided when deciding the appropriate methods of coverage. It is necessary to ensure that accurate information is transmitted to any insurance provider.

Risk Profile.  A policy can be cancelled due to changes in an insured’s risk profile. The insurance carrier issues a policy based on the known risks attributable to the insured.  If the insured increases their risk exposure, the insurance carrier may not be willing or able to cover the additional risk exposure and cancel the policy.  An example provision in an insurance policy may be something like “a substantial change in the individual risk which increases the hazard potential to the insurer unless the change was reasonably foreseeable.” Similarly, a policy may include language such as “any determination that the insurer determines could create a condition that is hazardous to the public.”   

Compliance. If the insured fails to maintain adequate compliance with the safety codes applicable to a building or structure the insured party risks losing their coverage for the building or structure.

Cancellation by Insured. An insured typically has the right to cancel their policy at any time, although some fees might apply. Generally, cancellation by the insured will require the individual to deliver notice to the insurance company.