Hobby Farms versus Working Farms: Understand the differences for the right insurance cover

In the world of agricultural insurance, understanding the difference between hobby farms and working farms is crucial for brokers who advise their clients on Farm Insurance.

“While the differences between hobby farms and working farms might seem straightforward, there are several grey areas that can pose potential challenges in securing the right insurance cover for clients.” says Peter Morsley, ARGIS’ Underwriting Manager. “Understanding these distinctions helps brokers provide better service and ensures their clients receive the most suitable and comprehensive insurance for their needs.

In this blog, we delve into understanding farm classifications, explore the insurance implications of each, and provide insights on navigating the grey areas. By the end of this blog, you’ll have a clearer picture of how to approach these unique agricultural properties, so your clients are well-protected and adequately insured.

Understanding Hobby Farms and Working Farms

“Hobby farms are generally smaller agricultural properties primarily for personal enjoyment, while full-scale working farms are set up for commercial production.” says Peter. “Hobby farms might produce enough for the owner's needs and some sales but aren’t the owner’s main source of income.

Also called weekenders or lifestyle blocks, these properties may not involve any farming activities at all, serving as lifestyle properties where owners enjoy the rural setting without significant or any agricultural work. Despite this, hobby farms are often insured with farm insurers due to the land size limitations held by domestic insurers.

In contrast, working farms are full-time primary production businesses registered with the Australian Taxation Office (ATO) and contribute significant labour towards farming and be a major source of income for the owner, though some may supplement earnings with other jobs. These farms are typically owner-operated or managed by a farm manager who is experienced in farming operations, ensuring continuous agricultural production.

“Working farms do not have strict size limits; classification depends on operations and income. For instance, livestock farming usually requires more acreage than fresh produce farming.” Peter says. “Being registered with the ATO, doesn’t automatically make a property a working farm. An income of less than $40,000 annually might indicate a hobby farm.”

These guidelines illustrate some of the grey areas brokers may face, as some hobby farmers might be registered as primary producers, but do not meet the operational scale of a working farm.

So what’s the coverage difference?

Hobby farms and working farms have distinct insurance needs.

Hobby farms, often covered under domestic policies, require:

• Home and Contents: Covers the dwelling and personal belongings.
• Liability: Basic liability protection, often insufficient for farm risks.
• Minimal Coverage for Outbuildings and Fencing: Limited protection for agricultural structures.

In addition to the above, working farms require more comprehensive coverage:

• Farm Property Insurance: Covers all buildings, contents, fixed machinery and equipment.
• Livestock Insurance: Protects against loss or injury of animals.
• Farm Liability Insurance: Higher liability limits for larger-scale activities.
• Interruption Cover: Enable farmers to maintain normal farming operations following a loss.
• Farm & Agricultural Vehicles: Covers vehicles and mobile machinery used in connection with the farming operations.
• Machinery Breakdown: Protects against breakdown of key machinery.

Navigating the Grey Areas

Peter says: “ARGIS specialises in arranging comprehensive insurance for working farms, and do not offer cover for hobby farms. However, we work with brokers to address the grey areas between the two types of farms, and support brokers to form a decision about the client’s requirements. We encourage all brokers to call our underwriters for clarification where coverage might not seem clear cut.”

“Consider a scenario where an elderly couple has decided to downsize from their expansive working farm to a smaller property.” says Peter. “They still engage in some farming activities, but their income is significantly reduced. Are they now operating a hobby farm, or do they still qualify as a working farm? These are the sort of scenarios we can help brokers with.”

Different insurers have different definitions, making it all the more important that you and your clients get the right advice for their particular situation. The above scenario highlights the importance of navigating the grey areas brokers often encounter, making it essential to have a nuanced understanding of both classifications.

For help, reach out to our expert team via email on argis@argis.com.au, or pick up the phone and give us a ring on 1300 794 364. We’ll do our best to make your problems simple.

The cover is subject to terms and conditions, limits and exclusions of the policy. Any information provided above is general advice only and has been prepared without taking into account your client's objectives, financial situation or needs. SGUAS Pty Ltd t/as ARGIS Insurance acts for the insurer, Pacific International Insurance Pty Limited (Pacific). Consider the Product Disclosure Statement and Target Market Determination, available by contacting Pacific on 1300 794 364 or visiting www.argis.com.au before deciding if it is right for you.