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An Overview of Revenue Protection Insurance

By Bennett O'Brien | Last updated: March 25, 2018
Key Takeaways

The market and the weather are very unpredictable, and both can have devastating effects on agricultural profitability . It's better to prepare for crop failures with revenue protection insurance than to be caught without your business' primary asset.

Source: Volodymyr Vyshnivetskyy / Dreamstime.com

The price of crops can change dramatically from season to season and year to year. Crops can fail due to various unpredictable weather phenomena, such as wildfires, droughts, and hurricanes. Volatile markets and extreme weather make farming a risky venture, but purchasing the right crop insurance can help you mitigate risks, protect your business, and ensure your profitability.

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What Is Revenue Protection Insurance?

Revenue protection insurance is insurance coverage that protects your profits, even if something goes wrong at some point in the agricultural cycle, from planting season to harvest and sale.

This coverage affords you peace of mind and lets you focus on your day-to-day farming operations, rather than worrying too much about the weather and changing crop prices on the commodities exchange market.

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Actual Production History and Coverage Amount

The insurance company uses your actual production history—an average of your actual yields over the years—to estimate the worth of your crops. Since it's impossible to know their actual market value until they are sold, these estimates give the insurance company the information it needs to provide you with coverage.

Depending on your needs, your insurance can cover 50 to 85 percent of your actual production history price per acre of crops. So, for example, if over the last 10 years, you had an average production history price of $1,000 per acre on your corn fields, you can purchase insurance to cover $500 to $850 per acre. If you have a 100-acre corn field, that means your insurance coverage can range from $50,000 to $85,000.

Purchasing a Package Policy for Convenience

You can purchase revenue protection insurance as part of a package policy that covers your entire farm. If you grow multiple types of crops, this affords you the convenience of buying one revenue protection policy to cover them all.

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Using Crops as Collateral for Loans

Revenue protection insurance can be helpful if you need to use your crops as collateral for a loan. For example, if you take out a $50,000 and use your upcoming wheat crop as collateral, you could be in trouble if a flood devastates your crop or the market value falls dramatically. However, revenue protection insurance ensures you receive a stable income regardless of production or market price fluctuations.

Lenders will also be more likely to give you a secured loan, or a loan with a collateral component, if they know your crop collateral has revenue protection insurance. The protection afforded by your coverage increases their confidence that you will be able to pay the loan back in full and in a timely fashion.

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Other Insurance Options to Consider

Revenue protection insurance is just one type of business insurance that may benefit you as a farmer. You may find it wise to consider equipment breakdown insurance, commercial property insurance, contents and stock insurance, and a number of other types of business insurance (find out How to Protect Your Business from Coverage Gaps Related to Equipment Breakdown).

Conclusion

Even if you are a seasoned and experienced farmer and have an incredible knowledge about the industry, a freak storm or sudden market fluctuations can have a drastic effect on your revenue. With the right insurance, however, you and your family can keep hold of the profits you have worked so hard to acquire.

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Written by Bennett O'Brien | Freelance Writer

Profile Picture of Bennett O'Brien

Bennett O'Brien is a freelance writer from the state of Massachusetts in the United States. He holds a bachelor's degree from Westfield State University, and graduated cum laude. Currently he is expanding his freelance writing career, and enjoying the opportunity to write on a variety of insurance and business topics.

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