Why Farmers Renting Land Need Farm Insurance Coverage

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You know you need the right insurance coverage for your own ag operations, but does your policy cover you when you’re renting land? You might think you’re in the clear. However, renting farmland, whether you are the farmer renting out your land to other farmers or the farmer leasing land from another farmer, introduces other risks and liabilities that may not be covered under your current ag policy. Often, the right farm insurance coverage for leaseholding farmers operates and protects similarly to renters’ insurance. Here is what to know and why farmers renting land need farm insurance coverage:

Do You Need Insurance on Leased Farmland?

Yes. You need insurance on rented/leased farmland. There are different factors and considerations that will determine what types of coverage you need and who covers what, but rented or leased farmland needs coverage just like owned farmland. Both the owners of the land and the parties renting the land need to ensure there are no gaps in insurance coverage and that risks are managed and mitigated.

7 Reasons Why You Need Farm Insurance For Rented Land

Here are some of the reasons why you need farm insurance for rented land:

1. A standard homeowner’s policy doesn’t cover commercial farming activities.
2. Lease agreements may require it.
3. Your assets need to be protected while on rented land.
4. Liability coverage needs to extend to the rented land.
5. You need coverage to handle potential property damage.
6. The use of farm chemicals often needs coverage.
7. There may be additional specific risks that need to be covered.

1. A Standard Homeowner’s Policy Doesn’t Cover Commercial Farming Activities

One of the biggest reasons why farmers renting land need farm insurance coverage specifically is that commercial farming activities are one of the things a standard homeowner’s policy does not cover, not even hobby farms. If you are the one renting farmland for farming activities from someone else, a farm insurance policy with the right coverage will protect you like a renter’s insurance policy would in a residential situation.

Similar to a homeowner’s or renter’s insurance policy, the right farm insurance policy for renting land will have some standard coverages with opportunities to extend protection with additional coverage or endorsements to make sure you are adequately covered for your specific situation, activities, and assets.

2. Lease Agreements May Require It

Similar to rental policies, lease agreements on farmland may require that the renter have a farm insurance policy with sufficient coverage. Lease terms and requirements will vary. In some cases, the landowner may require the renter to obtain their own liability policy and list the landowner as an additional insured. Depending on the types of insurance the landowner has, there may be some coverage via the landowner’s policy that extends to renters.

However, as a renter, you don’t want to rely on this alone. Even if the lease agreement does not specifically require you to obtain your own policy, it is a good idea to talk to your insurance agent and make sure you have the coverage you need to mitigate risk and adequately protect yourself in the event of a claim. Both parties, the landowner and the tenant, need to be aware of what is and is not covered on each of their policies and between them.

3. Your Assets Need to Be Protected While on Rented Land

Another reason why farmers renting land need farm insurance coverage is that any assets need to be protected while on rented land. Depending on the coverage included in your current policy, you may have some protection for equipment in some situations.

It is important to talk to your insurance agent and make sure the assets you will have on rented land will be sufficiently covered under your current coverage. If not, you may need to obtain a different policy or add coverage for any assets that will be moving to and from or staying on the land you are renting.

Farm insurance with the right types of coverage, including any endorsements you need, and sufficient limits can protect your personal property from damage or theft while being used or stored on rented land. Depending on how you will be using the rented farmland, assets could include:

• Machinery and equipment
• Tools
• Livestock
• Annual inputs (seeds, fertilizer, etc.)
• Crops
• And more

4. Liability Coverage Needs to Extend to the Rented Land

In addition to property coverage, crop insurance coverage, livestock coverage, and other types of coverage needed to protect your assets, liability coverage also needs to extend to the rented land. Whether it’s you, your family, your employees, volunteers, or members of the public, you could be liable for injuries that occur on the land you are renting and/or with equipment or other assets you own.

Ensuring liability coverage extends to any situations on rented land can protect you and others from costly medical bills or legal proceedings as a result of an accident or bodily injury incident. This could be as simple as increasing limits or adding endorsements to an existing umbrella liability policy. What is important is that the liability coverage limits are sufficient and that the coverage travels with you and extends to rented land, too.

Depending on your situation, the activities, and who is involved, you may need to acquire or extend farm workers’ compensation coverage in addition to liability coverage to make sure employees are adequately protected. Your insurance agent is a valuable resource who can help you review your coverage and ensure you are adequately insured. If you do need to obtain new coverage or adjust current coverage, your agent will be able to help you customize your policy to best suit your needs.

5. You Need Coverage to Handle Potential Property Damage

In addition to property damage protection for your assets on rented land, you also need to consider coverage for potential property damage caused by a person, your equipment, your livestock, etc. on rented land, and beyond it. Whether it’s an accident that damages the landowner’s structures, damage caused by a guest or visitor on the property, or damage somewhere else caused by escaped livestock, the right property damage coverage will help cover the loss according to the policy.

Additional farm/ranch umbrella liability coverage can be one way to obtain this protection. Depending on your situation and other coverage you have, you may have other options available that are better suited to your needs. Here, too, your insurance agent will be able to walk you through the options that fit your situation and needs and help you determine the best approach for you.

6. The Use of Farm Chemicals Often Needs Coverage

Treating, managing, and maintaining the quality of soil and crops can be a process. Farmers have a variety of tools, technologies, and treatments available to help manage that process, which can carry their own set of risks. Some of the most commonly used for increasing yield and protecting crops are manure, other fertilizers, and farm chemicals.

If you are applying or spreading manure or spraying farm chemicals, there is a risk of sudden and accidental discharge. Should that result in negative consequences or damage in some way, you could be considered liable for those damages and any costs associated with the cleanup. This is a risk whether you are spraying on land you own or on rented farmland.

Farm Pollution Liability coverage is important for any farmer applying or spraying farm chemicals. Many farm insurance policies can provide this coverage for sudden and accidental discharge. Make sure you talk to your insurance agent about your ag operations, on your land and on rented land. They will help ensure you have the right coverage you need on your farm insurance policy.

7. There May Be Additional Specific Risks That Need to Be Covered

Sharing resources with other farmers, preparing or selling food products, being open to the public, and more are all reasons why ag operations may need additional liability coverage. Similarly, there may be additional specific risks that need to be covered with rented farmland as well.

Depending on the land being rented, the landowner’s coverage, the lease agreement, the renter’s coverage, how the land will be used, and more, there are likely to be other risks associated with specific situations. If these do not fall under existing coverage, then additional coverage may be required via endorsements or other types of policies.

Having a conversation with your insurance agent can make getting the right coverage so much easier. Some of the biggest benefits of working with an independent insurance agent are a personalized approach and advice tailored to your specific situation, which is invaluable when navigating a complex insurance landscape.

4 Common Types of Farmland Rental Arrangements

Although specific terms and conditions will be set by individual landowners or land managers and will vary, rental arrangements and lease agreements for farmland tend to fall into four categories. Here are some common types of farmland rental agreements:

1. Fixed cash lease
2. Flexible cash lease
3. Crop share lease
4. Custom farming/contract farming

1. Fixed Cash Lease

Generally, on a fixed cash lease agreement, the renter pays a fixed amount per acre they are renting per year. If the tenant is using the farmland for crops, livestock, or other production under the USDA commodity program, they will receive the payments associated with that production.

The landowner may have conditions or restrictions on the types of crops, treatments, livestock, etc., but the tenant has control over production on their rented acres within the parameters of the lease agreement. Under this model, the tenant is renting the land, pays the landowner for the land, and retains all yield and payments from production on the land.

2. Flexible Cash Lease

With a flexible cash lease agreement, rent is usually determined by the profits made by the tenant on the farmland they are renting. This means rent payments are variable depending on actual yields and selling prices during the lease period.

Under this type of agreement, the tenant’s rent will be lower when there are lower yields and potentially higher when yields are higher. Conversely, the landowner takes on more risk as they will profit less when yields are low. At the same time, if yields are high, the landowner may have an opportunity to earn more via higher rent payments.

Government payments and crop insurance benefits are sometimes included when calculating gross revenue. Sometimes, crop input costs will be taken into account when determining rent payments or landowner bonuses. This will depend on the parameters and details of specific flexible cash lease agreements.

3. Crop Share Lease

Under a crop share lease, the landowner “collects rent” from a tenant via a share of the crop yield and a corresponding portion of USDA commodity payments for production on rented land. Although it is not a guarantee across the board, landowners generally pay property taxes and carry insurance for structures (buildings and dwellings) on the rented land under this model.

If this is the case, it should be clear in the conditions of the lease agreement. Landowners may also contribute to the material inputs required to farm the land, but this depends on individual landowners and specific details of lease agreements. The specific percentage or split between tenant and landowner in a crop share lease will vary and will be determined by the lease agreement. In some cases, it may be a 50-50, and could include a cash payment to offset other fees associated with production.

Other splits could be set as a partial percentage, like the landowner receiving 25-30% of the crop yield. Depending on the crops, the land, and buildings on the land, there may be separate charges for renting buildings or storage bins on the property as part of the lease agreement. There are several variations for crop share leases; specific splits and parameters should be clearly detailed in the lease agreement and understood by all parties involved.

4. Custom Farming/Contract Farming

With custom farming or contract farming, the landowner pays all other expenses associated with the rented land and pays a fixed amount to an operator. Under this model, a custom/contract farming operator will use their equipment and labor on the landowner’s farmland to manage production and will receive a fixed payment per acre from the landowner for their work. In addition to paying all other expenses, the landowner also receives all the crop yield and USDA payments for production from those acres under this model.

3 Factors That Impact Insurance Coverage on Farmland

Factors that affect the insurance coverage on farmland can include:

1. The farm’s location
2. Ownership structure
3. How the farmland is used

7 Types of Insurance to Consider For Rented Farmland

Individual situations will vary, but there are some types of insurance coverage to consider in general for rented farmland. Talking to an insurance agent with experience in ag can help you navigate the right coverage for your situation. Here are some common types of insurance to consider for rented farmland:

1. Crop Insurance
2. Livestock Insurance coverage
3. Property Insurance coverage
4. Liability Insurance coverage
5. Farm Pollution Liability coverage
6. Farm Vehicle Insurance
7. Workers’ Compensation Insurance

Get the Right Farm Insurance Coverage For Your Ag Operation

Personal property and equipment protection, protecting livestock, liability coverage, and more are reasons why farmers renting land need farm insurance coverage. Whether on your own farmland or rented farmland, it’s important to have the right farm insurance coverage in place before you need it. If you need to acquire new coverage or review your farm insurance policy, contact Ruhl Insurance, a Division of Horst Insurance, at 717-665-2283 or 800-537-6880.

Disclaimer: Information and claims presented in this content are meant for informative, illustrative purposes and should not be considered legally binding.