Insurance 101 with Mike King - Valuations for Horse Insurance purposes

Welcome back...this week we will take a look at valuations for Horse insurance purposes.

The question of value often arises when it comes to horse insurance.

Given the fact that one of the prime motivations to acquire horse insurance is (typically) mortality or life insurance, the “limit” of coverage obtained and provided is an important element and with “limit” comes the question of “value”.

Unlike human life insurance, where you or I can buy as much life coverage as we want to, horse insurers are not as generous and are more inclined to set a maximum on the amount of coverage that will be provided on any one horse.

So, back to the question - “how is value established”?

A few scenarios:

1) You bought the horse “today” for $5,000.00 and want to obtain insurance “today”… This is an easy one… Your legal insurable interest in the horse is $5,000.00 and therefore, the limit of insurance available is also $5,000.00. (Quick note- it doesn’t matter if you got a good deal and /or the seller was under duress and /or that the “farmer” had no idea what he was selling etc.)

2) You bought the horse two years ago for $5,000 and since then, the horse has matured and received training that legitimately has increased his/her value in the marketplace. This is a little more challenging. The supplemental questions that might be asked by the insurer before agreeing to a limit include:

a) What (exactly) does the horse do now that it did not do at the time of purchase and;
b) Why does this additional training increase the value?
(Quick note – I do appreciate that trainers charge a fee for training, but there is not necessarily a direct correlation between the actual investment in training and increased fair market value).

3) You bought the horse last year for $5,000 and have had a great show season and have even had offers for purchase from others. This is one of the most common reasons to increase the limit and experienced horse insurers will accept the argument that in these circumstances, the value may be more. So, my advice is to make sure you can substantiate the assertion that the value has increased by being able to provide additional documentation which could include a show record, or perhaps a letter from your trainer etc.

4) You want to insure a 3 month old foal that is out of your own mare. Most insurers will agree to a maximum value for the foal of 3 X stud fee / breeding fee. This is intended to recognize at least some of the actual costs associated with producing the foal (mare care etc.).

A few other important notes on “value”

a) A mare or stallion who has not successfully produced offspring are not a “broodmare” or “stud”, so the lineage of the horse may not have any significant bearing on the value of your horse until the performance is proven.
b) Values are (should be) reviewed annually with each renewal of the horse insurance policy so that you are not buying a limit of insurance that is not realistic
c) The value of any horse is very subjective – they are truly only worth what someone is prepared to spend – on any given day. We often counsel clients to imagine that if they were to sell the horse in the next 30 days, to use that short timeline to establish a limit of coverage. That way, things like “potential” and “show records from long ago” can be left out of the equation.

Our advice through all of this is the same…. Deal with an insurer / broker who understands the horse business and work with them through the inevitable ups and downs of horse ownership.

As always, Mike can be reached through this website or mking@intercityinsurance.com

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Comment by Charmaine Bergman on February 25, 2010 at 5:37pm
This is excellent, and thank you for taking the time to be involved in the education of us all. You could mention that there are personal property appraisers in Canada and some specialize in horses along with agricultural and other related areas. There are also canadians members of the American Society of Equine Appraisers. These specialists can help your insurer and you, by establishing a realistic value, that both parties can understand. And it is in writing, with support documentation included. Your appraisal should be reviewed each year, and re-done as required. It is not a happy place for an appraiser, to be involved in doing an after-loss valuation. It is a time of extreme stress and emotions for the owner as well. So, I recommend you talk to your broker, see what they can offer, and if valuation is required, seek a professional to do an appraisal to accompany your insurance application. Your insurer will probably thank you for this as well.
Comment by Jennifer Lamm on February 25, 2010 at 11:54am
When I read the Horses for Dummies book, before I got horses 6 years ago, I read that a surgical procedure for a horse can be around 10 thousand dollars and that it's good to have that amount set aside.... as a mortgage lender, about 6 years ago that was not a problem, so I put the money aside for my horse Oliver.... he's a 4 year old wild born mustang with about $20,000 worth of training on him and my horse for life so I put the money aside because I don't want to rely on insurance if my horse needs something.... it seems as though he has no value... but he's an awesome horse and I'm prepared to save his life if he needs it... :)
Comment by Susan on February 22, 2010 at 4:07pm
Thank you for this detailed outline. This series is excellent.
Do you do exclusively horse-related insurance?

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