The crops that you are growing do not qualify as covered property when it comes to commercial property or farm insurance policies. Because of this, an additional type of insurance will need to be purchased to cover the plants that you are growing if you are a farmer or other professional that is growing crops. Essentially there are two types of crop policies, which include multiple peril crop insurance coverage and crop-hail insurance coverage.
Multiple peril insurance is provided through a program that the federal government backs. Sold by private insurers, crop-hail insurance is not government supported. If your crops provide your livelihood, or a decent portion of it, you will want to consider getting crop insurance to protect you from large losses that can occur when unexpected events or situations happen. Managed and operated by the Risk Management Agency, part of the USDA, the Federal Crop Insurance Program is a partnership between the federal government and participating insurance providers.
This program was created in 1938 when the Federal Crop Insurance Act was passed. It took a while for the program to gain steam, but after expansion in the 1980s that made it more affordable and overhaul of the program in the 1990s, it started to grow. There are a few options that are available for farmers to provide insurance on their crops, and this is one of the options. Knowing how each of the options work is an important part of choosing the best type of crop insurance coverage for your needs.
How Does Crop Insurance Work?
The first of the two types of insurance is called multiple peril crop insurance. Multiple peril crop insurance policies are sold by between 10 and 20 crop insurance providers who have agreed to participate in the federal program. These insurance companies must also be approved by the USDA. Policies are sold through independent agents, who collect premiums, issue policies, and pay claims. Crop losses are paid efficiently, usually within 30 days of the date a claim is filed.
The federal government insures the insurance companies that participate. This means that if a payout on a claim is higher than the premiums that have been collected, the government shares in the losses. The Federal Crop Insurance Program is overseen by a corporation that is owned by the federal government, which is called the Federal Crop Insurance Corporation. It seems fairly complex, but through this agreement, as well as subsidies that are provided to participating insurers for administrative costs, farmers can get crop insurance coverage that can help them out when crop losses occur.
What Crops Are Covered?
The Risk Management Agency decides which crops will be insured, a decision that it makes annually based on the demand for coverage in specific counties and the risk of losses there. Crops that are most often insured include cotton, corn, soybeans, and wheat. In specific areas, where certain crops are most often produced, other types may be insurable. These can include crops like citrus fruits, pumpkins, walnuts, blueberries, peas, and more. If coverage for specific crops is not provided, farmers can ask the Risk Management Agency to expand the program to include that crop for their area.
Types Of Coverage
There are multiple types of coverage that are available, and for a multiple peril policy, specific losses are covered. This includes loss of crop due to drought, disease, freeze, and other natural causes. Policies must be purchased before farmers plant their crops, and insurance is usually based on yield or revenue.
A yield-based policy provides a payout for losses that are relative to their historical yield. Basic catastrophe coverage for crops provides a payout of losses are more than 50% of the normal yield. No premium is charged for this coverage, but farmers will need to pay an administrative fee. For higher levels of crop coverage, the farmer will be required to pay a portion of the premium, while the government pays the rest.
In most cases, farmers will choose a revenue-based policy. This type of policy generally covers a single crop, although whole farm revenue coverage is also offered. A revenue base policy protects farmers against loss in revenue for multiple reasons. If there is a drop-in harvest price, a declining yield, or a combination of both, a payout can be made. Covered perils include natural causes like hail, drought, excessive moisture, frost, insects, disease, and more. This type of policy also covers losses in revenue that stem from the harvest price of a crop being different than the projected price.
In some situations, if a loss of a crop that is not covered by the federal program occurs, farmers can apply for crop disaster assistance. This can help in cases of low yields, loss of inventory, or the inability to plant crops because of natural disasters. There are multiple types of insurance, and each of them has its own benefits.
Another type of insurance is crop-hail insurance. This is available through private insurers and is not part of the federal program described above. This type of policy can be purchased at any time during the growing season. Outside of hail, most perils are covered in a crop-hail policy. Coverages this can include are malicious mischief, fire, lightning, vandalism, and more. The policies can also cover the costs of replanting crops. There are generally several levels of coverage available, and a range of deductibles as well. This can be another way for people to get insurance for portions of crops that are not insured under the federal program. There are many insurance options for farmers, and researching what is available in your area is essential.
