Why Farmers Should Purchase Livestock Insurance

••• Peter Van de Bossche

Farms, ranches and other businesses that raise or house livestock may lose money if the animals are injured or die due to accidents or disease. They can protect themselves against the loss of valuable animals by purchasing livestock insurance. This insurance is typically used to cover domesticated animals such as cattle, sheep, pigs, and horses. However, it may also be used to insure more exotic creatures like bison, llamas, and alpacas.

There are several types of livestock insurance. The kind of coverage a business needs depends on the varieties of animals it owns and the purpose they serve. A large feedlot needs different coverages than a farm that owns a few cows.

Farm Policy

Many small and medium-sized farms and ranches insure their animals under a farm policy. The latter combines elements of a commercial package and a homeowners policy. It covers barns, stables, and other farm structures, farm personal property like grain, hay and machinery, the farm dwelling, and household property.

Livestock is covered as farm personal property if a limit for the animals is shown in the declarations. Livestock may be scheduled individually or as a herd (such as 100 head of cattle). Animals that are high in value, like those used for breeding, should be scheduled individually. Livestock may be identified by a written description, an ear tag, or some other mechanism. Note that the term livestock does not include chickens or other birds. Fowl are covered separately as "poultry."

A farm policy covers livestock while they are on or away from the insured premises. Livestock is not covered while in the course of transit by a common or contract carrier, at public stockyards or sales yards, or at packing plants or slaughterhouses.

Covered Perils

Most farm policies cover physical loss or damage (including death) to livestock due to the following "basic" perils (this is not a complete list):

  • Fire, lightning, explosion, smoke
  • Vandalism
  • Riot or civil commotion
  • Theft
  • Sinkhole collapse
  • Collision or overturn of a vehicle in which the livestock are being transported
  • Livestock running into or being struck by a vehicle while the livestock are crossing, moving along or standing in a public road
  • Earthquake or flood

Some policies also cover "broad" perils such as the following:

  • Attacks by dogs or wild animals. This coverage does not apply to sheep or to attacks by dogs owned by the policyholder, an employee or another farm resident.
  • Accidental shooting other than by an insured, an employee or another farm resident
  • Drowning
  • Loading or unloading accidents
  • Falling objects

Many farm policies include coverage for additional acquired livestock, meaning livestock you acquire during the policy period. A new animal is typically covered up to its actual cash value or a percentage (often 25 percent) of the value of the animals scheduled on the policy, whichever is less. You must report the new livestock within the time period specified in the policy (such as 30 days).

Animal Mortality Coverage

The coverage afforded under a farm policy for the injury or death of livestock is often referred to as limited animal mortality coverage. Businesses that do not obtain this coverage under a farm policy may purchase it separately. Limited livestock insurance does not apply to the death of an animal caused by old age or disease. These risks can be insured under a full animal mortality policy or endorsement.

Full animal mortality insurance protects a livestock owner against the death of an animal, whether natural or accidental, by any cause that's not specifically excluded. Coverage includes illness, injury, sickness or theft. The premium is calculated based on the animal's sales price or appraised value. Some insurers offer loss of use coverage for certain types of animals.

When applying for full mortality coverage you will need to present a certificate of health provided by a veterinarian who has examined the animal. If you are renewing a policy, you will need to provide evidence that the animal remains healthy.

Full animal mortality coverage does not cover death caused by the owner or by a preexisting condition. Also excluded is death by order of a government entity, say to prevent the spread of disease. If you sell the animal, your insurance will not be transferred to the new owner.

Coverage For Producers

Feedlots and other livestock producers can safeguard themselves against a drop in livestock prices by purchasing livestock risk protection insurance. This government-backed insurance pays the insured if the regional or national cash price index falls below a specified coverage price. It is available to businesses that sell swine, lambs or cattle to slaughterhouses. Details about this coverage are available from the USDA's website.