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Crop Insurance Basics

written by: Robin L.•edited by: Jean Scheid•updated: 12/31/2009

Learning about crop insurance basics is an important step to safeguarding your farming investment. Learn how the various forms of crop insurance may help you.

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    Learning about crop insurance basics can help individuals interested in getting involved in agriculture a better idea of the types of insurance available to them. One of the most important lessons in crop insurance basics is the different types of crop insurance. These include crop-revenue insurance, crop-yield insurance, and federal crop insurance.

    Crop-Revenue Insurance

    Crop-revenue insurance is a bit complicated. The production history of a specific crop produced by the individual farmer is calculated and compared to the futures price established before the crop is planted. The insurance guarantees the difference if the yield of the crop and the price of the futures estimate is different. It does not cover a decline in the price on the open market during the specified growing season. Or differences between the growth of one growing season compared to another.

    Crop-Yield Insurance

    There are two types of crop-yield insurance. The first is crop-hail insurance which can be obtained through private insurance companies. Hail is a specific threat to farmers and ranchers because it can destroy their entire product for that season. Because the risk is limited to one type of damage, it is generally more affordable. The second is multi-peril crop insurance. This covers a much wider range of crop damage possibilities including disease, drought, insects, and flooding. This type of coverage is often offered, or subsidized, by the government.

    Federal Crop Insurance

    The Federal Crop Insurance Act allows the government to offer crop insurance for specific types of crops. Individuals pay premiums for the amount of coverage they desire. Some crops are not eligible for this type of insurance. For those crops there is the Noninsured Assistance Program. For both the premiums must be paid before the crop is planted along with an additional per crop fee. For the policy to pay out, it is typically required that at least fifty percent of the crop be lost. Further insurance payments don’t usually cover the entire cost of the crop, rather only a portion of it.

    Farming and ranching are difficult and speculative endeavors. Events and natural forces beyond the control of the farmers and ranchers can seriously affect their ability to have a financially successful year. Crop insurance can help mitigate these unavoidable losses.