Definition - What does Crop Insurance mean?
Crop insurance is a form of risk management for agricultural businesses.
It protects these businesses from the financial fallout of perils that affect their crops, such as:
- Price fluctuation for agricultural products
Most crop insurance policies will cover both the natural hazards that affect the yield of usable and saleable crops as well as market declines that affect the profitability of the crops.
Insuranceopedia explains Crop Insurance
There are, broadly, two types of crop insurance policies: crop-yield insurance and crop revenue insurance.
As the name implies, crop-yield insurance insures against the perils that will affect the yield farmers get after planting and tending to their crops. If only a relatively low percentage of the crops they planted can be harvested and sold, farmers with crop-yield insurance can be compensated for this loss.
Farmers can insure against specific perils or can instead opt to purchase multi-peril crop insurance to protect against various causes of low yield.
Crop Revenue Insurance
Crop revenue insurance can compensate farmers even if they have a full yield, so long as market conditions significantly affect the profitability of those crops.
The Risk Management Agency establishes a projected price for crops planted at a certain time. If the price for those crops is lower than the projected price, farmers who invested in them by planting and tending to those particular crops can be compensated for this.
Crop revenue insurance only applies to price fluctuations within single growing seasons; it does not protect farmers against the gradual decline of crop prices over the span of years.