Buying a crop insurance policy is a great risk management option. Producers should carefully consider how a policy will work in conjunction with other risk management strategies to insure the best possible outcome each crop year. There are two primary types of crop insurance, Crop Hail Insurance and Multi-Peril Crop Insurance.
1. Crop Hail Insurance insures crops against more than just hail damage. Additionally, a Crop Hail policy will insure up to 100% of the expected value of a crop without deductible. Crop Hail Insurance coverage is provided exclusively through the private insurance sector.
Crop Hail Insurance protects against:
- Vandalism and Malicious Mischief
2. Multi Peril Crop Insurance (MPCI), also known as Federal Crop Insurance, is provided by the USDA Risk Management Agency or RMA. RMA authorized private insurers distribute MPCI policies through agent networks. Coverage is available for most crops. MPCI protects farm producers against a variety of yield and/or revenue losses. Producer premiums, reduced through Federal Government subsidization, can be very affordable. MPCI policy types include:
Yield-based (APH) Insurance Coverage:
- Actual Production History (APH) policies insure producers against yield losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. The farmer selects the amount of average yield he or she wishes to insure; from 50-75 percent (in some areas to 85 percent). The farmer also selects the percent of the predicted price he or she wants to insure; between 55 and 100 percent of the crop price established annually by Risk Management Agency (RMA). If the harvest is less than the yield insured, the farmer is paid an indemnity based on the difference. Indemnities are calculated by multiplying this difference by the insured percentage of the established price selected when crop insurance was purchased.
- Group Risk Plan (GRP) policies use a county index as the basis for determining a loss. When the county yield for the insured crop, as determined by National Agricultural Statistics Service (NASS), falls below the trigger level chosen by the farmer, an indemnity is paid. Payments are not based on the individual farmer's loss records. Yield levels are available for up to 90 percent of the expected county yield. GRP protection involves less paperwork and costs less than the farm-level coverage described above. However, individual crop losses may not be covered if the county yield does not suffer a similar level of loss. This insurance is most often selected by farmers whose crop losses typically follow the county pattern.
Revenue Insurance Plans: Note: All revenue-based options determine revenue differently. See each policy's provisions for their definition of revenue.
- Crop Revenue Coverage (CRC) provides revenue protection based on price and yield expectations by paying for losses below the guarantee at the higher of an early-season price or the harvest price.
- Group Risk Income Protection (GRIP) makes indemnity payments only when the average county revenue for the insured crop falls below the revenue chosen by the farmer.
- Income Protection (IP) protects producers against reductions in gross income when either a crop's price or yield declines from early-season expectations. To determine coverage, see the policy provisions.
- Revenue Assurance (RA) provides dollar-denominated coverage by the producer selecting a dollar amount of target revenue from a range defined by 65-75 percent of expected revenue. To determine coverage, see the policy provisions.
- Catastrophic Coverage (CAT) - pays 55 percent of the established price of the commodity on crop losses in excess of 50 percent. The premium on CAT coverage is paid by the Federal Government; however, producers must pay a $100 administrative fee for each crop insured in each county. Limited-resource farmers may have this fee waived. CAT coverage is not available on all types of policies.
- Biotech Yield Endorsement (BYE) is available in the states of Illinois, Indiana, Iowa, and Minnesota. When the producer meets all of the eligibility requirements, the BYE will provide producers a premium rate reduction if they plant non-irrigated corn for grain containing three specific biotech traits - YieldGard® Corn Borer, YieldGard Rootworm and Roundup Ready® Corn 2, which are only marketed under the trade names of “YieldGard® Plus with Roundup Ready® Corn 2” and “YieldGard VT Triple.”
Important MPCI Deadlines:
- Sales closing date - last day to apply for coverage.
- Final planting date - last day to plant unless insured for late planting.
- Acreage reporting date - last day to report the acreage planted. If not reported, insurance will not be in effect.
- Date to file notice of crop damage - after damage; the date the producer decides to discontinue caring for the crop; prior to the beginning of harvest; immediately, if farmer determines that the crop is damaged after harvest begins; or the end of the insurance period, whichever is earlier.
- End of insurance period - latest date of insurance coverage.
- Payment due date - last day to pay the premium without being charged interest.
- Cancellation date - last day to request cancellation of policy for the next year.
- Production reporting date - last day to report production for Actual Production History (APH).
- Debt termination date - date insurance company will terminate policy for nonpayment.
With Permission - USDA Risk Management Agency - ALL RIGHTS RESERVED