Farming is tough enough without having to tackle the foreign language spoken by lawyers and insurance companies. I’m in the insurance business and it confuses me at times. So today I will attempt to interpret a couple of very important terms and concepts that will help you in choosing the best insurance coverage for your farm.
Let’s start with something fairly basic. Should you insure equipment with blanket or specific insurance?
Just like it implies, blanket insurance covers everything that is designated under it.
Say you have five tractors ranging in value from $5,000 to $15,000 and totaling $50,000. You decide to insure them under a blanket coverage for $50,000.
If a tornado destroys one of the tractors, one of the claims adjuster’s concerns will be the value you placed on the tractors. A low value may result in a co-insurance adjustment which normally means less for your item. If your value is okay, then the settlement should go smoothly. So here are some pros and cons of blanket coverage.
Pro: Combinations of high- and low-valued property can be included.
Pro: Usually offers the lowest rate per thousand.
Con: No flexibility as all property in that category has to be adequately disclosed to avoid co-insurance issues.
The specific option allows you to pick and choose just the items you want to insure with no co-insurance clause to worry about.
In the example above, instead of insuring all five tractors, you choose to insure only the two most expensive, one for $15,000 and the other for $12,000.
If you lose the $15,000 tractor in a tornado, the adjuster will determine the value and settle accordingly. Say the value came in at $14,000. Although you had it insured at $15,000, the insurance company is obligated to pay only $14,000. If the value came in at $16,000, the insurance company is only obligated to pay $15,000, the amount you insured.
Pros and cons about specific coverage.
Pro: No co-insurance clause to worry about.
Pro: More flexibility.
Con: Usually higher premiums per thousand.
I think you will find that in many cases, it makes sense to have both coverages — maybe blanket for 80 head of cattle and specific for an expensive combine. In either case, protect your investment and consult your insurance provider for specific rules and coverages in your state.