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Insuring Your Farm Assets to Value

Insuring Your Farm Assets to Value                                                                                           


As a successor, protecting the value of the assets to be handed down is a priority.  One way of managing this risk is to be sure that your farm assets are properly insured.  When is the last time you have self-audited your farm insurance policy?  It would be a good time to look over the values placed on your implement sheds, livestock barns, and grain storage systems.   Undervaluing these farm structures is a common issue on farm insurance policies.  With the rising cost of building supplies, those insured values can get too low pretty quickly.   The old insurance rule of thumb for valuing a grain bin was $1/bushel.  Would that get be enough to replace it today?  Not likely.

So, what happens when you have replacement cost valuation written into your policy but have been insuring the structures for less than what it would take to rebuild?  Nothing, until you have a claim.  When you have a claim and the adjuster determines that you are not insuring that structure to the correct value, there will be a co-insurance penalty on the payout.  Most insurance policies require the insured to maintain a certain percentage of the replacement cost value of their structures to avoid being penalized.  This is usually 80-90%.   To determine the payout on your claim, insurance companies use a formula:

Did Carry/Should Have Carried X Loss Amount = Claim Payout (less deductible)


Let’s use an example.  Straight line winds take apart some down spouts and a tower grain dryer on a grain system that is insured for a limit of $300,000.  The accurate replacement cost value of the grain system is $500,000.  The co-insurance percentage is 80% on the policy.  This means that the farmer should could carry a limit of at least $400,000 to get a full claim payout.  Eighty percent of $500,000 is $400,000.  The total cost to repair and replace the damage is $125,000. 


Now you use the formula; did carry limit divided by should have carried limit multiplied by the loss amount-   $300,000/$400,000X$125,000=$93,750.  The claim payout will only be $93,750 less the deductible.    Another way to say that is, you only insured your grain system to 75% of the value you should have, so your payout will only cover 75% of the loss.  The rest of the cost to repair and replace the damaged grain system will come out of your pocket.  It may be worth your time to take out the insurance policy and run a quick check over the limits just to see if you are comfortable with the values. 


Check out this article and more related information at the Purdue Institute for Family Business website here-



Courtney Schmidt, MBA

ANR/HHS Extension Educator, Miami County

Licensed Indiana Resident Producer of Property & Casualty

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