Understanding Farmers Insurance For Planting: A Guide To Agricultural Coverage

Farmers' insurance for planting, also known as crop insurance, is an important risk management tool for farmers and ranchers. It helps protect them against losses in crop yields and revenue due to natural disasters or changing market prices. Crop insurance has been available in the United States since as early as 1880 and is divided into two main categories: federally subsidized multiple-peril crop insurance (MCPI) and state-regulated private crop insurance. MCPI covers a broad range of perils, including drought, excessive moisture, freeze, disease, and other natural causes, while private crop insurance, such as crop-hail insurance, covers a narrower range of perils but can be purchased at any time during the growing season. By purchasing crop insurance, farmers can protect their investment in essential food, fuel, and fiber production, ensuring they can continue their operations season after season.

Crop insurance helps protect farmers against changing markets and unpredictable weather

Crop insurance is an important risk management tool for farmers and ranchers. It helps protect them against changing markets and unpredictable weather so they can continue to provide essential food, fuel and fibre season after season.

The weather is always unpredictable, and the high risk of investment means farmers need to protect their crops. In 2023, extreme weather events, including freezes, flooding, hail and wildfire smoke, caused significant crop losses and damage for producers in the US Northeast. In years like this, being insured against these types of weather events can make or break a business.

Crop insurance can protect against financial losses from weather-related crop damage and quality reductions. Its purpose is to ensure farmers can continue operating after a difficult season. For example, if a farmer is prevented from planting their acreage due to flooding, they are required to notify their insurance agent within 72 hours of the final planting date. The policy will then pay to replant those acres.

There are two major types of crop insurance: multiple peril crop insurance (MPCI) and crop-hail insurance. MPCI covers crop losses, including lower yields, caused by natural events such as destructive weather (hail, frost, damaging wind), and is available for more than 120 different crops. Crop-hail insurance is offered by the private market and regulated by state insurance departments. It covers a narrower variety of perils, such as hail and fire, and is available for purchase at any time during the growing season.

The federal crop insurance program helps farmers get insurance to protect them when crop prices decline or harvests fall short due to natural causes. The US Department of Agriculture partners with private insurers to run the program. In 2022, federal costs were $17.3 billion, with about $12 billion subsidising premiums and the rest going towards insurance companies' administrative costs and government costs for losses related to the policies.

Crop insurance is divided into two categories: federally subsidized multiple-peril crop insurance (MCPI) and state-regulated private crop insurance

Crop insurance is an important risk management tool for farmers and ranchers. It helps protect them against declines in crop yields and revenue. Crop insurance is divided into two categories: federally subsidized multiple-peril crop insurance (MCPI) and state-regulated private crop insurance.

Multiple-Peril Crop Insurance (MCPI)

Multiple-Peril Crop Insurance (MCPI) is the oldest and most common form of federal crop insurance in the United States. MCPI is federally supported and regulated and is sold and serviced by private-sector crop insurance companies and agents. It covers a broad range of perils, including drought, excessive moisture, freeze, disease, and other natural causes. It also covers the failure of the irrigation water supply due to unavoidable causes. MCPI does not cover damage to farm infrastructure, such as grain bins and livestock barns.

MCPI policies must be purchased each growing season before planting begins. The cost of insurance and the amount an insurer will pay for losses are tied to the value of the specific crop. MCPI is available for more than 120 different crops, though not all crops are covered in every geographic area.

The federal government subsidizes the farmer-paid premiums to reduce the cost to farmers. The government also provides reimbursement to private insurance companies to offset operating and administrative costs.

State-Regulated Private Crop Insurance

State-regulated private crop insurance, also known as crop-hail insurance, is offered by the private market and regulated by state insurance departments. It covers a narrower variety of perils, primarily hail and fire. Crop-hail insurance is often purchased as a supplement to MCPI, especially in areas where hail is a frequent event. Crop-hail insurance can be purchased at any time during the growing season, whereas MCPI must be purchased before planting.

Farmers can purchase crop revenue insurance, which helps protect their earnings against drastic swings in crop prices

Farmers can purchase crop revenue insurance to protect their earnings against drastic swings in crop prices. This type of insurance is a risk management tool that helps farmers in years when crops have a low yield or the price of the crop is low. The insurance covers revenue losses caused by a change in the harvest price from the projected price.

Crop revenue insurance guarantees a certain level of revenue rather than just the production of crops. It protects farmers from declines in both crop prices and yields. The guarantee is based on market prices and the actual yield on the farm. The projected price is determined by using the monthly average new-crop futures prices, and the harvest price is determined by averaging the new crop futures prices. The final revenue guarantee is computed by multiplying the higher of either the projected price or the harvest market price by the average yield, and the chosen coverage level.

If the harvested yield multiplied by the harvest price is less than the amount of insurance protection, the farmer is paid an indemnity based on the difference. This payment is designed to offset the cost of purchasing the deficit bushels at a market price above the price at which they were forward-contracted. It is also useful for livestock producers who have to purchase extra grain in a short crop year, often at a high price.

Crop revenue insurance is available for more than 120 different crops, though not all crops are covered in every geographic area. It is one of the two major types of crop insurance, the other being multiple peril crop insurance (MPCI). MPCI covers crop losses caused by natural events such as destructive weather (hail, frost, damaging wind), drought, excessive moisture, insects, and disease.

Prevented planting coverage is available for most crops and covers insurable causes of loss such as floods, hurricanes, or excess precipitation

Farmers can purchase crop insurance to protect against the loss of their crops due to natural disasters or the loss of revenue due to declines in the prices of agricultural commodities. One aspect of crop insurance is prevented planting coverage.

Prevented planting refers to the failure to plant an insured crop with the proper equipment by the final planting date. This date is designated in the insurance policy's Special Provisions and can vary by crop and area. If a late planting period is applicable, it begins after the final planting date and typically lasts for 25 days.

Prevented planting coverage is available for most crops and covers insurable causes of loss, such as floods, hurricanes, or excess precipitation. To qualify for this coverage, the cause of loss must be general to the surrounding area and prevent other producers from planting similar crops.

If a farmer is prevented from planting their acreage, they must notify their insurance agent within 72 hours after the final planting date. This notification is required if the farmer does not intend to plant during the late planting period or determines that planting within this period is not feasible.

The amount of prevented planting coverage depends on the actuarial documents of the farmer's guarantee for timely planted acreage. In some cases, additional coverage can be purchased to increase the level of protection.

It is important to note that prevented planting coverage does not apply to area risk protection policies. Additionally, there may be minimum acreage requirements, such as a minimum of 20 acres or 20% of the insured crop acreage, for this coverage to take effect.

Supplemental replant coverage is an option for farmers who need to replant crops

Supplemental replant coverage is also known as Supplemental Replant Coverage (SRC) or Supplemental Replant Option (RO). It is available from a range of insurance providers, including ProAg, Silveus Crop Insurance, and NAU Country Insurance Company.

In the case of a replant loss, the SRC policy will provide a payment equal to the selected liability per acre for the replanted acres, up to the limit of insurance on the schedule of insurance. The total replant payment for the SRC policy will not exceed the maximum per acre limit listed on the schedule of insurance.

To be eligible for SRC, application must be made by the MPCI crop’s sales closing date for each year. SRC is not available for high-risk, unclassified, or uninsurable acreage, crops with catastrophic risk protection, organically produced crops, second or double crops, or crops in counties insured under an MPCI Written Agreement.

Frequently asked questions