Farming is a foundational industry, providing millions with food and jobs in the United States alone. It is also highly unpredictable and prone to unique risks.
A season's hard work can be jeopardized by unforeseen natural events, such as thunderstorms, droughts, or hail. Understanding and choosing the right crop insurance is vital for protecting against these potential losses.
Join us as we delve into the intricate world of crop insurance. We will clarify how crop insurance works in addition to describing its various forms and coverage. By understanding these options, you can make informed decisions to protect your crops, income, and future in agriculture.
Crop Insurance Explained
Crop insurance is a unique type of coverage that has become a key federal support program for agriculture in the United States. As the U.S. Department of Agriculture explains, the Federal Crop Insurance Program began nearly a century ago to offer financial protection for agricultural producers against losses (including direct losses and lower yields) due to adverse natural events.
These events include:
- Drought
- Hail
- Wind
- Excess moisture
- Damaging freezes
- Price fluctuations
Agriculture has always been extremely sensitive to weather and climate, but modern farmers are facing new challenges due to climate change. The United States Environmental Protection Agency (EPA) emphasizes that climate change can make conditions better or worse for growing crops in different regions.
On one hand, it can cause longer growing seasons and optimal conditions for certain crops. On the other hand, increases in temperature can lead to drought and the increased threat of wildfires.
There is constant research underway to help this industry prepare for a changing climate. Methods like crop rotation and proper pest management can help farms remain productive in the face of change. However, the best thing modern farmers and ranchers can do to protect their assets is invest in comprehensive crop insurance.
Types of Crop Insurance
While farmers often face similar challenges, there are still different types of crop insurance coverage to choose from. The Insurance Information Institute explains that there are two major types of crop insurance in addition to specialized coverage options that some farmers may want to consider.
Let’s take a closer look at the most popular types of crop insurance.
Multiple Peril Crop Insurance (MPCI)
MPCI is perhaps the most well-known type of crop insurance. It is supported and regulated by the federal government and offers comprehensive coverage for more than 120 different crops. However, not all crops are covered in every region.
Still, more than 90% of farmers choose to invest in this type of crop insurance. These policies must be purchased each growing season before crops are planted. That’s because if damage occurs early on, the policy may include incentives to replant (or penalties for not doing so) to help support national supply chains.
MPCI covers losses due to a broad range of natural perils such as drought, excessive moisture, freezing, and disease. It does not cover damage to farm infrastructure.
Crop-hail Insurance
While MPCI does offer coverage for destructive weather like hail, some farmers who work in areas of the country where hail is common may consider investing in this type of crop insurance. Crop-hail insurance is not covered by the Federal Crop Insurance Corporation. It is sold by private insurers and regulated by state insurance departments.
It covers only a handful of perils, primarily hail. In some areas of the country, it may also cover potential fire damage.
Crop-hail insurance is often seen as a supplemental insurance product due to its flexibility and low deductibles. It can be purchased at specific point in the growing season.
Crop Revenue Insurance
Farming can be fickle. Farmers of crops that experience significant price fluctuations, like corn and soybeans, may consider additional crop revenue insurance. This type of crop insurance works by protecting against a loss of income due to declines in both crop prices and yields. In other words, it covers poor yields, reduced commodity prices, or a combination of both.
The amount an insurer will pay is based on how much lower the current revenues are compared to the previous crop year.
Honorable Mentions
These types of crop insurance are important risk management tools for the majority of farmers. Niche agriculture endeavors should also consider specialized insurance to protect their other assets. This includes livestock risk protection (for farmers that also have livestock).
Who Needs Crop Insurance?
Crop insurance is an important coverage available to farmers and ranchers. This insurance is not for casual operations but for those in the agriculture space.
The USDA explains that federal crop insurance works on a contract basis. It is a commitment between insured farmers and their insurance providers for a crop year. Under the contract, the insured farmer agrees to insure all the eligible acreage of a crop planted in a particular county.
Choosing the Right Crop Insurance
Crop insurance is a fundamental protection for farmers and ranchers. Along with multiple-peril crop insurance, farmers should also consider other supplemental insurance options to protect all of their assets.
Learn more about the product offerings at World Insurance and how they can be tailored to the needs of your farm or ranch.
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