3 basics of crop insurance

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Federal Crop Insurance Corporation (FCIC) programs are administered by the USDA’s Risk Management Agency (RMA), which underwrites crop insurance policies for hundreds of crops and livestock in the United States. Crop insurance policies are sold and serviced by private insurance companies.

In 2015, 1.2 million policies were sold protecting more than 120 different crops, covering 297 million acres, an area larger than Texas and California combined, with an insured value of $102 billion, according to the National Crop Insurance Services.

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1Two types
Multi-peril crop insurance: This risk management tool protects producers from loss of crop due to natural disasters such as hail, drought, freezes, floods, fires, insects, diseases and wildlife; or the loss of revenue due to the decline in price.

Crop-hail policy: This policy is not part of the Federal Crop Insurance Program, but is sold by private insurers and regulated by individual state insurance departments. Hail has the unique ability to completely destroy significant parts of a planted field while leaving the rest undamaged. In 2015, crop-hail liability was $37 billion, and premium was $977 million, according to the National Crop Insurance Services.

2Common mistakes
According to the USDA, these are some of the most common mistake producers make in reporting crop insurance:

  • Under-reporting planted acreage per unit: Production counted for an insured crop is derived from all planted acreage for that crop per unit. Under-reported acres leads to inflated yields and a lower indemnity payment.
  • Over-reported acreage per unit: Over-reported acreage will be reduced to the correct number of acres. Indemnity payments will be slightly less due to the reduction in your total guarantee (not your per acre guarantee) and you will be refunded any overpayment of premium.
  • Failure to report all farm serial numbers (FSNs) planted: Unreported FSNs will not have coverage. This oversight tends to occur with added land, but many times occurs because the producer fails to insert the planted acreage figure under the farm number on their acreage reporting form. The indemnity payment will be reduced.
  • Failure to report the production for all farm serial numbers (FSNs): Failing to report all FSNs with production information on or before the production reporting date means that production cannot be added at acreage reporting time. The unit without production will be assigned a yield based on the variable T-yield procedure — this yield is generally lower than the grower’s actual yields. The indemnity payment will be less. T-yield is an estimated county yield of the insured crop, that’s assigned if the insured isn’t able to provide a minimum of four years of actual production history.
  • Failure to elect “New Producer” status: If you are a new producer, failing to elect this status will result in the yield on the crop being assigned using the variable T-yield method (a percentage of the county T-yield) instead of more favorable method of using 100 percent of the county T-yield. The indemnity payment will be lower.
  • Failure to indicate added land: Failing to indicate added land will result in a yield calculated using a variable T-yield method instead of more favorable methods. Indemnity payment will be lower.
  • Harvesting the crop in a manner other than insured: i.e. if a producer insures his corn as grain but harvests as silage without informing the crop insurance provider of the change and getting a claim, the adjuster cannot appraise the grain content of harvested corn silage. No indemnity will be paid.
  • Destroying the insured crop without approval: Production for a crop that is destroyed before the claim adjustment is made will be assessed at the full production guarantee and no indemnity will be paid.

3Do I need it?
What makes federal crop insurance unique from other insurance products is that companies that sell federal crop insurance must sell a policy to any farmer at the premium rate set in advance by the federal government. Crop insurance companies cannot refuse to provide protection, raise the premium rate or impose special underwriting standards on any individual producer, regardless of risk.

Buying a crop insurance policy is one risk management option. Producers should always carefully consider how a policy will work in conjunction with their other risk management strategies to insure the best possible outcome each crop year.

Sources: National Crop Insurance Services; USDA Risk Management Agency, Crop Insurance Basics.

(Farm and Dairy is featuring a series of “101” columns throughout the year to help young and beginning farmers master farm living. From finances to management to machinery repair and animal care, farmers do it all.)

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