I I F A R MANAGEMENT COMMON ERRORS IN BUYING INSURANCE Duane Stevenson Multicounty Farm Management Agent The importance of insurance is growing with the ever-increasing investment required in farm assets, and insurance helps you protect these large investments. A major catastrophe might easily cause you to lose your farm or wipe out your savings unless ypu’re adequately insured. On the other hand, carry ing larger amounts of insurance than necessary can be costly. In general, the mistakes that most people make when buying insurance fall into two categories: buying too little and buying too much. The failure to purchase essential coverages can leave an individual vulnerable to unbear able financial loss. Unless the insurance program is designed to protect against poten tial catastrophes to which a person or business is exposed, an entire life’s work can be lost in a single uninsured loss. On the other hand. FARMING FOR THE FUTURE with * A new AERWAY can be your ticket to INCREASED PROFITS and help you comply to your conservation plan. w* hid harvested com si lag* Wi than ipnid between 4,000-5,000 gallons of liquid mn ure per acts and dlshsd the seed bad to pta l*e for small grains. We wars absoUaly amazed to toe difference where wa used the Aar-Way and ona daliing Mynon-Aar-VtoyadgroundwaadWrad 3lo«limes and still wasn't as good Iwoddraoom "•id the Aar-Way to other laman as it aollsni the Onwd and lets ran and manura panatah aataid w running off* to-W Sandlord II- Farm, Orange, Virginia AGRI-QUIP CORPORATION it is possible to purchase too much insurance buying protection against losses that could more eco nomically be retained. The difference in buying the right amount of insurance is com poundedty the fact that it is possi ble to make both mistakes at the same time. Most people spend enough to provide an adequate insurance program, but too often they ignore critical risks. This leaves gaping holes in the overall pattern of protection, while unim portant risks are insured using val uable premium dollars that would be more effectively spent elsewhere. Some insurance buyers turn the entire decision making process over to an outside party such as an insurance agent, broker, or finan cial planner. Delegating the responsibility to an outside party does not relieve the insurance buy er of obtaining an optimal prog ram. Keep in mind that these indi viduals are in the business to sell insurance, so proceed with caution. An insurance salesman does not enjoy being in a defensive position when a loss takes place. When tier this spring, I used the Aer-Way Implement am ■Way chain harrow on my rolling pastureland. Thi, done to open up the ground to get water into the ing grasslands. At the same time I pulled the Aer- chain harrow to scatter the cattle manure around. Even after the dry summer we had, I noticed that the Aer-Wayed ground held the moisture better and we got thicker and taller regrowth where we ran the machine. Dr. Rex Wilhelm D.V.M., Stuart, lowa FLEXIBLE CHAIN HARROW Iq y . s , pi.,* _l me ftjl One of the heamest m the industry. | intonl)llUon about your , | Intensive Grazing Maintenance I I „ D . □ Flexible Chain Harrow , Pasture Renovation | | Seed Bed Preparation _j 3920 MARKET STREET, CAMP HILL, PA. 17011 1-800-228-8032 charged with the overall responsi bility for the insurance decisions, he or she may decide to protect himself or herself, as well as the client, by opting for more rather than less insurance. Even though a competent insur ance agent or planner is a valuable source of advice, the basic rules governing the decision should be made by the person or persons most directly involved. These decisions usually have a large financial impact over the long run, either in premiums paid or losses sustained if hazards are not insured. The basic problem facing any insurance buyer is that of using the available premium dollars to the best possible advantage. In order to obtain the maximum benefit from the dollars spent, some sort of plan is needed. Otherwise, there is a tendency to view the purchase of insurance as a series of individual, isolated decisions, rather than a single problem. Also, there are no guidelines in dealing with the vari ous risks faced. A priority ranking for insurance expenditures can help you in devising your plan. Such a plan can be formulated to set priorities for the allocation of premium dol lars on the basis of a classification of risks or potential losses. Insur ance coverages are designed to protect against three main catego ries of risks: Essential, Desirable, and Optional. • Essential insurance coverages include those designed to protect against loss exposures that could •| taw batlar pastures smca I k and renovata my pastures. Usii the nulriant* whan thay art naadad. I would not racommand (artilizlng or liming without running tha Aar-Way tint* Sandy Fiahar, Brookvlaw Farm - Baaf Cattta Oparation Manakki-Sabel, Virginia Acr-Way Implement The Need For A Plan Atr < W.v i await Lancaster Farming, Saturday, September 19, 1992-C3 result in bankruptcy. Insurance required by law is also considered Essential. Keeping in mind that a loss may or may not occur is less important than possible size. • Desirable insurance coverages include those which protect against loss exposures that would force the insured to borrow or resort to credit. • Optional insurance coverages include those which protect against losses that could be met out of existing assets or current income. Advantages of Deductibles The need for insurance is dic tated by the inability to withstand the loss in question if the insurance is not purchased. People who need insurance are those who can least afford it, but they are the ones who can least afford to be without it. In determining whether or not to purchase insurance in a particular situation, the important question is not “Can I afford it?” but rather “Can I afford to be without it?” When available dollars cannot provide all of the essential and desirable coverages you want to carry, the question becomes where to cut. One approach is to assume a part of the loss in connection with these coverages, thereby freeing dollars for others that you desire. In most lines of insurance, full coverage is uneconomical because of high cost of protecting against small losses. If you exclude cover age for these losses through deduc tibles, the premium credits granted PAUL B. Your Complete Headquarters For Sprayers And Parts PAUL B. ZIMMERMAN, INC. 50 Woodcomer Road hours; LilllZ, PA 17543-8328 Mon, Thor. , Fn 7 8 30 Phone: (717) 738-7350 • HARDWARE • FARM SUPPLIES » CUSTOM MANUFACTURING • CRANE SERVICE may permit you to purchase others that are desirable. You should consider the impact that tax laws may have on insur ance costs and losses. For instance, the fanning busi ness’s property and liability insur ance premiums are a deductible expense, as are uninsured losses. However, contributions to a funded retention program are not deductible. The situation with respect to the individual is considerably diffe rent Insurance premiums are not a tax deductible expenditure for the individual, but uninsured casualty losses are. In addition, uninsured property and casualty losses are deductible from taxable income only when you itemize your deductions on the IRS form Sche dule A and exceed the standard deduction for your taxpayer classification. Also when you complete Form 4684, “Casualties and Thefts,” the loss must be greater than $lOO and an adjustment is made to your loss by subtracting 10 peftent of your adjusted gross income (Form 1040, line 32). In some instances you may need to obtain assistance from your tax preparer. Remember that establishing a feasible and durable insurance program will take time on your part. You may need to obtain assis tance from several professionals and also evaluate your needs in your farming business, as well as your personal ones. 811] HM? Tax Considerations null
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