Crop insurance is a valuable form of risk management for farmers with a history that goes back to the late 19th century when insurance companies began selling these policies to protect against hail. This form of insurance covers crop losses by agricultural producers due to a range of covered perils like disease, drought, flood, and insects.
What Is Crop Coverage?
Agriculture is a unique industry with unique types of losses which tend to be severe and geographically targeted. Crop insurance is designed for agricultural producers such as ranchers and farmers to protect against crop loss due to a natural disaster or declines in crop prices.
Unlike many forms of insurance, crop coverage is federally supported and regulated with individual policies sold by private insurance companies and agents. Crop coverage comes in two forms: multi-peril crop coverage, which is a federal program, and crop-hail coverage.
Multiple-Peril Crop Coverage
This type of policy, called an MPCI policy, is part of the federal crop coverage program and sold directly by private insurers. An MPCI policy covers crop losses, including lower yields, due to natural disaster such as:
- Destructive weather
- Insect damage
MPCI policies also offer optional yield protection and price protection. This protects farmers against loss in revenue due to market changes or low yields. These optional forms of coverage protects agricultural growers against dramatic swings in crop prices, no matter the cause.
An MPCI policy must be purchased at the beginning of each growing season based on federal deadlines and before the crop has been planted. If covered damage occurs early in the season, an MPCI policy may offer an incentive for replanting or penalties for not replanting. The cost of the policy and the amount of coverage is linked to the value of the farmer’s specific crop. MPCI policies are available for over 120 crops, but not every crop is covered in every area.
The second type of insurance is crop-hail coverage. This type of policy is designed for farmers in areas with a high risk of hail and it’s not part of the federal crop coverage program. Crop-hail insurance can be purchased to supplement an MPCI policy because it has no or low deductibles. This is an important feature as hail can destroy crops in only one area but leave other crops unharmed, unlike drought. This means hail claims can be less than the deductible on an MCPI policy.