What Is Crop Insurance?

What Is Crop Insurance?

If you’re a member of the agricultural production industry, you may hear the term “Crop Insurance” from time to time. Crop insurance offers protection multiple types of farming losses. There are two primary types of crop insurance used primarily in the industry. Below, you’ll find everything you need to know about this unique insurance policy.

Who Uses Crop Insurance, And Why?

Key players in the agricultural production industry tend to purchase crop insurance because it can mitigate losses incurred as a result of natural disasters. Insurance policies could also protect against the risk of losing revenue when the prices of agricultural commodities decline. Those who typically buy crop insurance policies include:




Multiple Peril Crop Insurance

There are two primary crop insurance policies on which the agriculture industry tends to rely. The first is Multiple Peril Crop Insurance. This insurance policy protects against lower crop yields that occur as a result of a natural disaster. Examples include, but are not necessarily limited to, flooding, droughts, fire, disease, and insect damage. Policies will also likely protect against losses caused by adverse weather, such as damaging wind, hail, or frost.

Agriculture producers must purchase an MPCI policy from an agent in the private sector. However, the federal government supports and regulates the program. This is by far the most common crop insurance policy available. In fact, more than 90 percent of agriculture producers who purchase insurance opt for an MPCI policy. 

Costs of a policy can vary significantly depending on the crop and where it is grown. Insurance companies offer plans for more than 120 different crops. However, insurers may not cover every plant in every geographical area. Farmers and other producers will need to purchase either an umbrella policy or separate policies for each one of the plants that they grow.

Lastly, producers must purchase a new policy each growing season. The federal government establishes the deadline to do so. Insurers do not have any flexibility with them. Also, farmers must purchase the policy before planting the crops. This prevents farmers from obtaining last-minute policies before a significant event, like a hurricane, is set to occur. Producers should also be aware of incentives or penalties in place for replanting crops.

Crop Revenue Insurance

The other ten percent of agriculture producers purchase Crop Revenue Insurance. This seeks to protect producers in years when the price of their crop is low or when their yield is low. Insurers will pay on a fluctuating basis. They will factor how much the year’s revenues are lower than those figures from the prior year.

This type of policy is useful to producers when there is something like an unexpected price swing that is out of their control. For instance, the federal government recently imposed tariffs on China that would have long-term implications on the agriculture industry. The United States Agriculture Department said that they allocated more than $12 billion for farmers who were hurt by the policies. Crop Revenue Insurance would also be relevant in this scenario.

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