The sleep tight policy
September 18, 2023
Being a seedstock producer often requires making a big investment in new genetics – a new herd bull or top-notch donor cow can run into the tens of thousands, easily. And because your investment is a living, breathing animal that will be walking around on four legs out in the elements, that money is at risk every day. That’s why taking an hour or so to learn the ins and outs of how to best protect your investment by visiting with an insurance agent is time well spent.
Mark Smith of Grassroots Genetics has over two decades of experience in helping producers minimize their risk. He explains livestock mortality insurance is a risk management tool like any other kind of insurance – house, medical, etc.
“It’s kind of a sleep tight policy in case your investment is bigger than you’re comfortable with,” Smith says. “If you walk out one morning and that animal you have so much money in has cratered … you’re not going to sleep well for a long time if it wasn’t protected with mortality insurance.”
Reasons why insurance makes sense
In addition to protecting your loss against a breeding animal’s death, another common reason producers seek out a policy is to buy time. In other words, you might buy a year-long mortality policy to give you time to get that pricey herd bull’s semen collected, or the donor cow flushed or a first calf crop on the ground. After that, your risk in the investment in those genetics goes down considerably.
What about those guarantees from the purebred operation you buy bulls from — shouldn’t that be enough? Not necessarily.
“I know a lot of breeders give a first-year guarantee or first breeding season guarantee sometimes, and those are all great with the ones that offer it,” Smith says. “The thing about that, it usually comes with credit back to the same operation that you purchased from. Some of them will bring you another bull, but what if you really wanted a specific animal? The insurance gives you your money immediately and then you can buy when and wherever you want instead of having to wait and use credit at the sale next year. Those are some good reasons why you need to be paying a little bit of attention to whether mortality insurance is for you or not.”
Another common example of seedstock producers utilizing mortality insurance is when they send bulls off to a bull test. The same logic would apply for sending replacement heifers to be developed off ranch. In this scenario, the producer might insure the whole group for $3,000 a head, as an example, so that if one (or more) of them dies while they are under someone else’s care, they can get compensated.
The different types of policies
A key distinction to be aware of is there are two different types of mortality insurance — full mortality and specified perils. Full mortality covers the animal whether it dies from natural causes, like bloat or cancer, in addition to dying from an accident or weather event, such as lightning, blizzard, drowning, etc. Specified perils policies do not cover natural causes, only the accidental/weather causes. Exactly what events are covered in a policy can vary somewhat, so be sure to read the fine print.
Shari Holloway with Ag Defense Risk Management also works with producers on both kinds of mortality policies, though her company also sells a completely different category of livestock insurance called livestock risk protection that only deals with price risks. Holloway says the specified peril policies, or pasture policies if you will, are typically used to cover an entire cow herd — but only up to a specified limit.
“Usually, it’s not for a higher-priced type of cow herd,” she explains. “We can do a valuation up to about $5,000 per animal but it only runs about 1% of the value of the herd for those specified perils, like lightning. There is a deductible you must establish per incident, but they’re pretty affordable policies for people that are just looking for catastrophic type insurance.”
Even with full mortality policies there are limits in terms of the length of the policy. The longest term available tends to be for only one year, but after that it can be renewed and at a lower rate, potentially. So, if a $10,000 bull is insured for the full $10,000 in year one and goes on to be collected or sire a calf crop, his owner may decide to renew the policy for a second year but for maybe $7,000 as there is less risk to his or her investment in the second year.
At the other end of the spectrum, producers might have reason to only need one month or a few months to insure an animal. Buyers should be aware, the longer the term is the higher the premium is, as well. Even so, matching the needs of a particular situation to what a company offers will take a little number crunching to make sure you’re getting the best deal possible.
“We can offer a transit rate, which is just to cover the time it takes to transport an animal home from an auction,” Holloway adds. “The minimum is $250, though, so you’re almost better off in some cases to go ahead and just buy the full-year term for full mortality.”
About that $10,000 bull
Like buying car insurance, the premium you pay to get livestock mortality insurance depends greatly on the value of the item being insured. If the animal was bought at an auction, it’s easy to establish their value – it’s what is on the bill of sale. However, if you’ve raised a really good bull that needs to be insured, how do you put a dollar figure on him?
“Then, you’re going to have to explain to the underwriters why you believe his value is X amount of dollars,” Smith says. “What we’ll need is an evaluation letter, meaning you’ll need to get somebody else to evaluate what this animal is worth and put it in writing. Or lots of times, what I get is a show record or a progeny record. The value can also be established by the amount of semen or embryos sold. There is a very small chance of the underwriter saying, ‘Nope, we’re not gonna do that.’
“They might write back and say, for example, they won’t go for $100,000 but will do $45,000 or whatever” he adds. “The other part of that is the insurance company understands the buyer is paying for that amount of coverage — let’s say in the case of a yearlong policy, the buyer is looking at a 6% premium. So, if the animal’s valued at $40,000, they’re paying $2,400 and if it’s valued at $100,000, he’s paying $6,000 for the coverage. It’s not in the buyer’s interest to overvalue the animal.”
Other than a difference in evaluating an animal’s worth, folks with a history of claiming losses for mortality insurance can get turned down for a policy. In fact, Smith says the application will ask about your loss history and if you have the animal insured with any other company. You can’t double-dip. And if you do — whether by oversight or by fraud — and then try to make a claim, it’s very likely a claims adjuster will sniff out the double payment.
Holloway says a common misconception among producers is they don’t realize the animal has to be dead (or sometimes stolen, depending on the policy), for the loss to be covered.
“If a bull gets crippled or breaks a leg but the vet says the bull is not hurt badly enough to put down or he can heal, that would not be covered,” she explains. “Also, a lot of times people want to buy infertility insurance. But unless there’s something out there I am not aware of, there really isn’t anything in the market worth having for infertility these days – it’s just too high.”
The process and questions to ask
Once you know which type of mortality insurance works for your needs, the process is easy, though it does require some paperwork and some photos. If you’re at an auction and want to insure that cow before you load her up in the trailer, that can be done with just a phone call.
“The buyer can call their agent, who will ask them to keep copies of the bill of sale, the check and the pedigree or lot number from the catalog,” Smith explains. “With cell phones, it works so nicely because you just shoot pictures of all that. So, for example, send me the pictures and I fill out an application. We put the animals’ particulars, his birthdate and registration, and your particulars, address, date, email and then we send you the application by DocuSign. You read it all through, make sure we’re all talking about the same critter, sign it and send it back to me. If the agent has what’s called binding authority, it can happen instantaneously.”
Of course, you also have to pay for it. Hopefully, you have established a relationship with an insurance agent before it gets to this point; but if not, a sale manager can usually help you find one. Either way, there are a few key questions to ask before signing any paperwork:
- Is the policy for full mortality or specified peril?
- If it is specified peril, what exactly are the events covered?
- Are there any limits to the coverage?
- What is the term of the policy?
- What is the rate of the premium?
- If you’ve borrowed money to buy the animal, does the bank require you to list it as an additional payee on the policy?
- Who is the company underwriting the policy (not just the agent selling it to you)?
If disaster strikes, say the donor cow was struck by lightning, Smith says to grab your cell phone again because you will have to prove the animal died.
“The producer is supposed to call claims, but usually they call me,” he adds. “I tell them to immediately shoot a picture of the animal and try and get a shot of the head, ear tag, tattoo, brand, or anything they can get to show the identity. Take tons of pictures with your phone. Then call your veterinarian to come out and post it. Many times, it’s something obvious and that’s what the vet will call it “death by lightning” or something similar.
“But if it looks iffy as to what caused the death, the claims department may ask them to cut the animal open and find out if it had cancer or some other disease,” Smith says. “If it’s on a full mortality policy, they’re going to pay either way, but they keep a database of why animals die.”
From the producer’s perspective, if the cause of death is covered, it doesn’t really matter – he or she will be able to sleep knowing there will be a check in the mail soon.