Do You Need Insurance on Leased Farmland?
Feb 21, 2022
2 min read
The short answer is yes, you do need insurance for rented/leased farmland. But there are many factors to consider when weighing the options for insurance. For example, what does your landlord already cover? Will there be a profit-sharing agreement? Depending on the conditions of your agreement, you will need to fill in the gaps to make sure you have the coverage you need. And the landowner may even require you to do so. Here is some information to help you navigate renting/leasing farmland.
Why You Need Farm and Ranch Insurance for Leased Land
Rented/leased farmland needs all the same coverages as owned farmland, it’s just a matter of who will cover what in the terms of your agreement. Nearly 40% of all U.S. farmland is rented or leased, and 80% of rented farmland (31% of all farmland) is owned by non-operator (non-farming) landlords, according to the U.S. Department of Agriculture. This means there are many ag operations that are owned by non-farmers but managed by farmers. Both parties involved in the agreement need to take steps to mitigate risk and ensure there are no gaps in coverage in the event of severe weather, injury to workers, equipment breakdown, and other risky scenarios that leave your operation vulnerable to lawsuits and profit loss.
Common Farm Rental/Lease Arrangements
There are four common types of leases used to rent farmland, according to Iowa State University. The exact term of each lease varies depending on the conditions set by the landowner.
Fixed Cash Lease
The tenant pays rent per acre each year to use the farm resources. While the landowner may have restrictions about what crops or treatments are allowed on the property, the tenant has control over crop and livestock production and receive the USDA commodity program payments.
Flexible Cash Lease
The tenant pays rent based on the profits they’re making off the farmland. In this model, the landowner takes on more risk when yields are low, but they also have opportunity for more profit if yields are high.
Crop Share Lease
The landowner receives a portion of the crop yield and the USDA payments in exchange for the tenant using their land. In this arrangement, the owner likely pays the property taxes, carries property insurance for the buildings and dwelling on the land, and they may also pay for some of the costs for material inputs to farm the land.
Custom Farming Contract
The operator of the land provides the equipment and labor necessary to farm and receives a fixed payment per acre from the owner. The landowner pays all other expenses and receives all the crop yield and USDA payments.
Types of Insurance for Rented/Leased Farmland
When considering insurance for your farm or ranch operation, you need coverage for the land and for the people and machines working on the land. Below we explore farm and ranch coverages that protect both landowners and tenants.
Property Coverage
Farm and ranch property insurance offers protection for your buildings, personal property, loss of income, and other farm or ranch vulnerabilities. Notable optional farm or ranch property coverages include equipment breakdown coverage, farm operation interruption, and replacement cost coverage for farm machinery including irrigation equipment.
Liability Coverage
Legal claims can be damaging to your ag operation. Farm or ranch liability coverage can protect your assets in the event of a lawsuit, animal waste pollution, employee injury, and more. This coverage is important for any business as claims can be unpredictable and costly.
Farm Vehicle Insurance
It’s likely that your business requires a few farm vehicles. Whether it’s a truck, ATV or trailer, you’ll want to make sure it’s covered so you can keep your operation moving when a loss or accident occurs.
Crop Insurance
Crop insurance covers damage to the crop caused by hail, droughts, flooding, or other natural disasters. You can use a combination of federal and private crop insurance to protect your operations from inherent risks.
Livestock Insurance
Your livestock can generate a lot of revenue and you want to protect your operation from loss. Consider coverages like livestock gross margin, livestock risk protection, and dairy revenue protection and help protect your livestock operation against declining cattle, swine, and lamb market prices.
Make Sure Your Operation is Protected
Renting/leasing farmland is a common practice that requires coordination between the landowner and land operator. At the end of the day, both parties benefit from the proper coverage. Meet with a Farm Bureau agent today who can walk you through the process.