A farm insurance policy is written by underwriters for other underwriters first, and for you second. That is a fact you have to work around: the words on the page are precise legal terms, and the gap between what a word sounds like it means and what it actually means is where claims get disputed. This guide takes the terms that come up most often in farm policies and explains what they mean in the situations you actually face.
Sum insured, reinstatement value and indemnity: what happens when a grain store burns down
Say fire destroys your grain store. The first question your policy answers is how much you'll be paid, and that depends on three terms that sound similar but aren't.
The sum insured is the maximum amount the insurer will pay for that building, set by you (or your broker) when you took out the policy. If it was set to what the store cost to build fifteen years ago, it may be well short of what it costs to rebuild today, and that shortfall is yours to cover.
The reinstatement value is what it would cost to rebuild the store now, to the same standard, using current materials and labour rates. A policy written on a reinstatement basis pays this figure, up to the sum insured, so the two numbers need to match.
Indemnity is the older basis, and it pays what the building was worth immediately before the loss, meaning wear, age and depreciation are deducted. A twenty-year-old grain store on an indemnity basis might be valued at a fraction of what a new one would cost, which is why most farm buildings cover is now sold on reinstatement terms. Our guide to farm buildings insurance goes into how sums insured are typically calculated for barns, grain stores and other structures.
Why the sum insured needs revisiting
Insurers often renew a policy on last year's sum insured unless you tell them otherwise, and rebuild costs for agricultural buildings have moved considerably in recent years because of materials and labour pricing. Checking the sum insured against a current rebuild estimate is one of the simplest ways to avoid being underpaid after a genuine loss.
Excess: the first slice of any claim you pay yourself
The excess is the amount you pay towards a claim before the insurer pays the rest. If a storm takes the roof off a machinery shed and the repair costs £8,000 against a £500 excess, the insurer pays £7,500 and you cover the £500. Excesses are usually higher for machinery and livestock cover than for buildings, and some policies apply a separate, larger excess for specific risks such as flood or subsidence. It's worth knowing the excess for each type of claim before anything happens.
Index-linking: keeping the sum insured honest between renewals
Index-linking means the sum insured is adjusted automatically each year, usually in line with a construction or retail price index, so it broadly keeps pace with rising rebuild and replacement costs without you having to renegotiate every renewal. It's a useful safeguard, but it's not a substitute for reviewing the figure yourself every few years, because an index tracks general costs, not the specific cost of rebuilding your particular grain store or workshop.
Public liability and employers' liability: two different exposures
These two terms get confused constantly, and they cover entirely different risks.
- Public liability responds when someone outside your business, a walker, a contractor's client, a visitor to a farm shop, is injured or has property damaged because of something on your farm. A loose gate that lets stock onto a road, or a pothole that damages a delivery van, are the kind of incidents this cover exists for.
- Employers' liability responds when someone who works for you is injured while working. It is a legal requirement if you employ anyone, including casual or seasonal staff at lambing or harvest.
Read more in our guides to public liability insurance for farms and employers' liability insurance for farms, including who counts as an employee for insurance purposes.
Business interruption: covering the gap when the farm can't trade
If a fire closes your dairy parlour for three months, the cost isn't just the repair bill. It's the milk you weren't able to sell while it was out of action. Business interruption cover is built to pay for that lost income and certain ongoing costs, calculated against a figure you declare when you take out the policy. Getting that figure right matters more than it might seem, because an underestimated declaration can reduce what you're paid even on an otherwise valid claim. Our guide to business interruption insurance for farms sets out how the calculation typically works and what farmers commonly get wrong when estimating it.
Livestock mortality: what "listed" and "notifiable" are doing in the small print
If a cow dies from disease, livestock mortality cover is what pays out, but only for diseases the policy actually lists. "Listed" here doesn't mean common, it means named in the policy document, and the list varies between insurers. A notifiable disease, one you're legally required to report to the authorities under UK animal health law, is not automatically the same thing as a listed one for insurance purposes, though the two often overlap. Before you need to claim is the time to check exactly which diseases your own policy names. Our livestock insurance guide covers mortality, theft and disease cover in more detail.
All-risks machinery cover: what "all risks" doesn't mean
"All risks" sounds like everything is covered, but it's a description of the style of cover. All-risks machinery cover typically pays for sudden, accidental damage, fire, theft and similar events, while still excluding wear and tear, mechanical or electrical breakdown, and damage from continuing to use equipment that was already known to be faulty. Where those exclusions bite hardest is on ageing kit, where the line between a sudden breakdown and gradual wear can be genuinely arguable, and is often where insurers and farmers disagree. Our guide to farm machinery insurance covers declared values and the gaps that catch farmers out.
Questions worth taking to a broker
Once the terms make sense, the useful next step is asking specific questions. A regulated broker can tell you, for your policy specifically:
- Is the sum insured on my buildings based on current rebuild cost, and when was it last checked?
- Is this policy written on a reinstatement or indemnity basis, and does that differ between buildings, contents and machinery?
- What excess applies to each type of claim, and is there a separate excess for flood or subsidence?
- Which diseases are actually listed under the livestock mortality section?
- What counts as wear and tear under the machinery section, and how has that been decided on past claims?
These are the kind of questions a policy document alone often won't answer clearly, which is exactly what a conversation with a broker is for. If a claim has already gone wrong because of a misunderstanding over wording, our guide to farm insurance claims and your rights sets out what options are available. For definitions of further terms as you come across them, the farm insurance glossary is arranged for quick reference.