PROTECTING
PROTECTING
INCOME AND FARM ASSETS
Loss of income cover is
currently used by only 1 in
20 farmers. But its
becoming more popular
WHEN fire or any other disaster strikes, it is often not the initial loss of a building, plant or stock which threatens the viability of a business, but the longer term loss of income while repairs or rebuilding is carried out.
Loss of income, income protection, turnover cover, revenue or profit protection – these all refer broadly to the same type of cover, which protects a business from the after effects on trade of an insured loss.
In the case of intensive livestock or a pedigree business where stock is also lost, then the road back to production and profitability can be a much longer and more costly one. With this in mind, some policies give a three year period to get the business going again.
Some estimates put the proportion of farmers taking up this type of cover at just 5%, although it is an area where an increasing amount of business is being done.
Intensive livestock is one of the areas where cover of this type is more widely taken up. Overheads such as rent and interest would still have to be paid while the unit is out of production.
The cost of income protection is mitigated by the transfer in many cases of inputs such as fertiliser, seed, feed, chemicals, straw and in some cases even the stock itself to the loss of income cover.
These would normally be covered under a conventional contents policy, but because they are counted as income producing materials, they move to the revenue cover, so reducing the cost of the farms original cover.
Insurers will usually need a declaration of income for each sector of production. Cover and premiums are calculated on the basis of the businesss expected future income using previous years performance and with a margin to allow for production and market price fluctuation. If at the end of the insurance year the income is less than that for which the business was covered, then a rebate should be paid.
In some cases of damage to buildings and equipment, although the herd or flock may be unaffected otherwise, the circumstances may dictate that there is no alternative but to disperse the stock.
Increased cost of working cover, or additional cost of working cover, is usually part of income protection. It would allow for hire of machinery after it is put out of action or destroyed by an insured risk. This may include a breakdown.
Damage to or destruction of buildings just before a crop is due to be stored would cause huge practical problems. Loss of income cover would pay for rented storage while the original is repaired or replaced.