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Don't bet the farm, use an insurance broker.

When it comes to farm and agricultural insurance there are many different things to consider when looking at an insurance policy.  Farms are different types of risks and are combining both a traditional home and property with a specific commercial operation.  While many see farming as simple, farm equipment can extend into the millions of dollars even on family-owned and operated farms.  Furthermore, they are businesses too with similar needs to many retail, wholesale or manufacturing operations.

When looking for farm insurance it is important to understand what insurance coverage is necessary for a specific farming operation.  A grain or crop farm has different needs than one dealing with livestock or poultry, yet both may have similar exposures that require insurance. 

One key aspect about farm insurance is that equipment costs for tractors, combines, threshers, and more is increasing as technology improves.  Where some equipment cost $100,000 in the past, values often exceed over $500,000 now for many important operational elements.

When new equipment is being sold to a farmer the dealer often thinks about the potential of loss and the liability a farmer has for any money owing form the purchase of equipment.  It’s at this point many insurance coverages can be offered by the implement dealer, and while they are licensed as Restricted Insurance Agents (RIA), is this the best option for a customer? Is this the point at which the purchaser of a large and expensive piece of equipment should be making an insurance decision?

The national association for insurance brokers, Insurance Broker Association of Canada (IBAC) has advocated that ‘insurance ought not to be sold at the point of granting credit’.  The reason for this position is that a consumer is there to secure credit while making a purchasing decision and insurance should not be a part of their purchasing decision when they need to secure credit. 

There is also another issue with the sale of insurance via a credit granting entity such as an RIA, when purchasing farm equipment who’s interest is the seller protecting, theirs or the buyer’s?

The types of policies that can be sold by RIAs are credit related insurance policies and include the following: Creditor’s Disability Protection, Creditor’s Life Insurance, and Creditor’s Loss of Employment Insurance.  Each of these products is an important risk management tool that all consumers should be aware of when making significant, long-term financial commitments but is the point of purchase for farm equipment the right time to make that decision?

The name says it all, as the Creditor is the entity lending money while the borrower is called the Debtor.  In this case the entity selling the product and arranging the financing is also selling an insurance product that explicitly protects them.  Therefore, using an insurance broker, and having that person do the work for you is critical.  The broker can shop for you to find products that are suitable to each person’s individual needs and lifestyle with appropriate and unbiased risk analysis.  The broker does not have an interest in the financial outcome of the credit granted, nor the loss payee and is an ‘uninterested party’ in the transaction. 

While the product may be available at the dealership, a broker has access to many different companies and products along with the mandatory education to ensure conduct of the utmost good faith with no potential conflicting interest.  A farmer would not trust anyone to manage, seed and harvest their land, they would turn to qualified experts. That’s why using an insurance broker to provide choice and options for their biggest purchases is an important protection they need and deserve.

03.03.20
Written By: BSI