Crop Insurance
What Does Crop Insurance Mean?
Crop insurance is a form of risk management designed for agricultural businesses. It safeguards these businesses from the financial impact of various perils that can affect their crops, such as:
- Flooding
- Drought
- Hail
- Price fluctuations of agricultural products
Most crop insurance policies cover both natural hazards that affect the yield of usable and marketable crops, as well as market declines that impact the profitability of the crops. Crop policies do not cover farm equipment or liability claims, so farmers usually buy other types of business insurance to fill those gaps.
Insuranceopedia Explains Crop Insurance
There are generally two types of crop insurance policies: crop-yield insurance and crop revenue insurance.
Crop-Yield Insurance
As the name suggests, crop-yield insurance protects against perils that impact the amount of crops farmers can harvest after planting and tending to them. If only a relatively small percentage of the crops they planted can be harvested and sold, farmers with crop-yield insurance can be compensated for the loss.
Farmers can choose to insure against specific perils or opt for multi-peril crop insurance, which protects against a variety of causes that may result in a low yield.
Crop Revenue Insurance
Crop revenue insurance compensates farmers even if they achieve a full yield, as long as market conditions significantly reduce the profitability of those crops.
The Risk Management Agency sets a projected price for crops planted at a given time. If the market price for those crops falls below the projected price, farmers who have invested in planting and tending to those crops can be compensated for the difference. The most common product offering this protection in the U.S. is revenue protection crop insurance, a federally subsidized policy sold through USDA-approved insurers.
Crop revenue insurance covers price fluctuations only within a single growing season; it does not protect farmers against the gradual decline in crop prices over several years.
