Jane Dotson
Agricultural producers, including farmers, ranchers, and others, can purchase crop insurance to protect against the loss of crops due to natural disasters or the loss of revenue due to declines in the prices of agricultural commodities. 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, drought, excessive moisture, deep freezes, unusually hot weather, and disease. Crop-hail insurance is provided by private insurers and is not part of the Federal Crop Insurance Program. It can be purchased at any point in the growing season and protects against hail, fire, lightning, wind, and other perils like vandalism and malicious theft. Farmers can also purchase crop revenue insurance, which helps in years when crops have a low yield or the price of the crop is low.
Characteristics of Crop Insurance
| Characteristics | Values |
|---|---|
| Who is it for? | Agricultural producers, including farmers, ranchers, and others |
| What does it protect against? | Loss of crops due to natural disasters, loss of revenue due to declines in the prices of agricultural commodities |
| Types of crop insurance | Multiple Peril Crop Insurance (MPCI), Crop-Hail Insurance |
| What does MPCI cover? | Loss of crops, lower yields caused by natural events (destructive weather, insect damage, etc.), failure of the irrigation water supply |
| MPCI availability | Available for more than 120 different crops, but not all crops are covered in every geographic area |
| MPCI popularity | More than 90% of farmers who buy crop insurance opt for MPCI |
| MPCI cost | Tied to the value of the specific crop |
| Crop-Hail Insurance | Provided by the private sector, not part of the Federal Crop Insurance Program, can be purchased at any point in the growing season |
| Crop-Hail Insurance protection | Protection against hail, fire, lightning, wind, vandalism, malicious theft; may also cover replanting costs |
| Other types | Revenue-based policies, Crop Revenue Insurance |
| Federal Crop Insurance Program | Set up in 1938 with the Federal Crop Insurance Act, restructured with the Federal Crop Insurance Reform Act of 1994 |
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What You'll Learn
- Crop insurance policy types: Multiple Peril Crop Insurance (MPCI) and crop-hail insurance
- MPCI covers losses from natural events, including destructive weather and insect damage
- Crop-hail insurance is purchased separately and covers vandalism and theft
- Revenue-based policies are also available, covering a single crop or an entire farm
- The Federal Crop Insurance Program was set up in 1938 to stabilise the nation's food supply
Crop insurance policy types: Multiple Peril Crop Insurance (MPCI) and crop-hail insurance
Crop insurance is purchased by agricultural producers, including farmers, ranchers, and others 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. There are two major types of crop insurance: Multiple Peril Crop Insurance (MPCI) and crop-hail insurance.
Multiple Peril Crop Insurance (MPCI)
MPCI is an agriculture insurance policy designed to protect insured farmers against a broad range of natural perils, including drought, hail, insects, etc. It is federally supported and regulated and is sold and serviced by private-sector crop insurance companies and agents. MPCI is available for more than 120 different crops, though not all crops are covered in every geographic area. The Federal Crop Insurance Corporation (FCIC), a government corporation overseen by the United States Department of Agriculture (USDA), reinsures a portion of the risk, making it an affordable option. Farmer-paid premiums are subsidized for MPCI policies, keeping the cost of protection low.
MPCI coverage must be established each year before federal deadlines. There are several MPCI policy options designed to protect farmers from the impact of yield loss, market changes, or revenue loss. The Margin Protection Crop Insurance Plan, for example, provides coverage against an unexpected decrease in operating margin (revenue less input costs). The Whole-Farm Revenue Protection (WFRP) provides a risk management safety net for all commodities on the farm under one insurance policy.
Crop-Hail Insurance
Crop-hail insurance is a type of private insurance that covers agricultural products destroyed or damaged by hail and fire. It is sold on an acre-by-acre basis and reimburses the farmer for the value of the products lost while in the field. Crop-hail insurance is not the same as MPCI and is not part of the Federal Crop Insurance Program. It is sold by private insurers and regulated by state insurance departments. Crop-hail policies often have a low or even no deductible. Farmers can purchase crop-hail insurance at any time during the growing season.
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MPCI covers losses from natural events, including destructive weather and insect damage
Multiple Peril Crop Insurance (MPCI) is a type of crop insurance that covers losses from natural events, including destructive weather and insect damage. It is one of the two major types of crop insurance, the other being crop-hail insurance. MPCI is federally supported and regulated and is sold by private-sector crop insurance companies. It covers crop losses, including lower yields, caused by natural events such as destructive weather (hail, frost, damaging winds) and insect damage. For example, if a farmer has insured their crops against hail damage, and a hailstorm causes damage to their crops, they would be able to make a claim on their MPCI policy to recoup some of their losses.
MPCI is available for more than 120 different crops, though the specific crops covered can vary depending on the geographic area. The cost of MPCI and the amount that an insurer will pay out for losses are tied to the value of the specific crop being insured. In addition to destructive weather and insect damage, MPCI can also provide coverage for other natural perils or hazards, such as the failure of the irrigation water supply due to an unavoidable cause of loss occurring within the insurance period.
Crop insurance, including MPCI, is an important tool for farmers and other agricultural producers to manage their risk and protect themselves financially from losses due to natural disasters or declines in commodity prices. In 2021, US farmers invested more than $5 billion in crop insurance policies, reflecting the importance of this type of insurance in the agricultural industry. Climate change is also increasing the need for crop insurance, as weather-related natural disasters are becoming more frequent and intense, leading to higher losses for farmers.
When purchasing MPCI, farmers need to consider the specific coverage details of different plans and select the one that best fits their needs. Crop insurance agents are responsible for knowing the plans available in their marketing area and the requirements for each plan. It is important for farmers to understand the covered causes of loss specific to their crop, as these can vary somewhat from crop to crop. By carefully reviewing the available options and selecting the most appropriate coverage, farmers can ensure they are adequately protected against potential losses.
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Crop-hail insurance is purchased separately and covers vandalism and theft
Crop insurance is purchased by agricultural producers, including farmers, ranchers, and others, 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. The two major types of crop insurance are Multiple Peril Crop Insurance (MPCI) and crop-hail insurance. While MPCI covers crop losses caused by natural events and is federally supported and regulated, crop-hail insurance is purchased separately and covers specific risks, including vandalism and theft.
Crop-hail insurance is designed to protect against physical damage caused by hail, which can completely destroy crops in certain areas of a farm while leaving other areas untouched. It is particularly relevant for farmers operating in areas prone to hailstorms, as it can provide financial protection against the loss of high-yielding crops. This type of insurance can be purchased at any time during the growing season and is sold on an acre-by-acre basis, allowing farmers to focus on insuring areas that are at higher risk.
The coverage provided by crop-hail insurance can vary depending on the crop and the region. In addition to hail damage, it may also cover fire, wind, lightning, vandalism, and malicious mischief. However, it typically does not include protection against weather-related risks such as sudden frost, drought, or excess moisture, nor does it cover price risks. Farmers should carefully review the coverage details and select a policy that aligns with their specific needs and risks.
While MPCI is the more popular choice among farmers, with over 90% of farmers who buy crop insurance opting for it, crop-hail insurance serves as an important supplement. It is especially valuable in areas where hail is a frequent occurrence and where farmers need protection against the unique challenges posed by hailstorms. By purchasing both types of insurance, farmers can ensure more comprehensive protection for their crops and revenue.
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Revenue-based policies are also available, covering a single crop or an entire farm
Revenue-based crop insurance policies are a popular choice for farmers. These policies can cover a single crop or an entire farm, and they allow farmers to select a level of coverage, typically between 50% and 75% of the average yield. This type of insurance is designed to protect farmers in years when crop yields are low or when the price of crops is low.
Revenue-based policies are particularly useful for farmers who are concerned about the financial impact of low crop yields or fluctuating market prices. By insuring a portion of their expected revenue, farmers can gain peace of mind and financial security in the event of adverse circumstances. This type of insurance is also known as crop revenue insurance and is separate from the Federal Crop Insurance Program.
When purchasing a revenue-based policy, farmers should carefully review the coverage details and select a plan that aligns with their specific farming operation and risk management needs. Different insurance providers may offer varying levels of coverage and exclusions, so it is essential to understand the terms and conditions of the policy. It is also worth noting that revenue-based policies may have different requirements and restrictions compared to other types of crop insurance.
In addition to revenue-based policies, farmers can also consider other types of crop insurance, such as Multiple Peril Crop Insurance (MPCI) and crop-hail insurance. MPCI is a popular choice, covering losses due to various natural events, including destructive weather, insect damage, and more. Crop-hail insurance, on the other hand, is often purchased as a supplement to MPCI, providing protection against hail damage, which can be a localized event affecting only a portion of the crops.
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The Federal Crop Insurance Program was set up in 1938 to stabilise the nation's food supply
The history of crop insurance in the United States dates back to 1899 when a private company in Minneapolis introduced the first "all-risk" crop insurance. However, it wasn't until 1938 that crop insurance became federally administered. The Agricultural Adjustment Act (AAA) of 1933 did not include federally administered crop insurance, but it did become a presidential campaign issue in 1936, with Franklin D. Roosevelt showing his support. In 1937, President Roosevelt formed a Committee on Crop Insurance to release a report on crop insurance for wheat production, and shortly after, the Federal Crop Insurance Act was passed.
Crop insurance is purchased by agricultural producers, including farmers and ranchers, to protect against the loss of crops due to natural disasters or the loss of revenue due to declining agricultural commodity prices. There are two main types of crop insurance: Multiple Peril Crop Insurance (MPCI) and crop-hail insurance. MPCI is federally supported and regulated and is sold by private-sector crop insurance companies. It covers crop losses, including lower yields, caused by natural events such as destructive weather, drought, blight, and insect damage.
The Federal Crop Insurance Program has been essential in stabilising the nation's food supply by helping to stabilise farm business incomes, reducing farm bankruptcies, and avoiding disruptions to food, livestock feed, and other markets for agricultural commodities. The program has also encouraged the development of new insurance products and increased competition among crop insurance providers, ultimately benefiting farmers and agricultural producers.
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Frequently asked questions
Crop insurance is a type of insurance purchased by agricultural producers, including farmers, ranchers, and others, to protect against the loss of crops or revenue due to extreme weather, natural disasters, or price fluctuations in the agricultural commodity market.
There are two major types of crop insurance: Multiple Peril Crop Insurance (MPCI) and crop-hail insurance. MPCI covers losses due to natural events such as destructive weather, insect damage, and disease, while crop-hail insurance protects against hail, fire, lightning, wind, vandalism, and theft.
MPCI is federally supported and regulated, but sold and serviced by private-sector crop insurance companies. Crop-hail insurance is also provided by private insurers but is not part of the Federal Crop Insurance Program.
The cost of crop insurance varies depending on the type of crop, the level of coverage, and the provider. Premium rates for MPCI are determined by the Risk Management Agency (RMA), while the price of insurance is constant across the industry for products developed by the Federal Crop Insurance Corporation (FCIC).
Crop insurance is important for farmers and agricultural producers to manage their risk and protect their livelihoods. It helps maintain the viability of farming and ensures the stability of the nation's food supply.
