Crop insurance is for people in the agricultural industry and is an insurance policy for the goods that they produce such as carrots, broccoli and corn. Farmers and ranchers, anyone who produces agricultural items, can purchase crop insurance. The purpose of this type of insurance is to guard against the many reasons that a farmer’s crops can be destroyed.
For example, in some areas of the country, floods can occur. When a farmer’s crops are flooded, the entire yield may not be fit to be taken to market. In this case, the farmer loses all of the money that has been put into planting the crop and does not receive anything in profit, since the crops cannot be sold. To keep from losing everything, farmers can purchase crop-yield insurance.
Farmers receive crop-yield insurance from the United States government. This policy comes from the Department of Agriculture which also helps farmers pay their premiums. The particular crop-yield insurance that the government offers to farmers is called multi-peril crop insurance (MPCI) and it covers all types of reasons that a crop can be completely wiped out. Along with floods, crops can be damaged by insects, and under this policy, the money lost when these crops cannot be sold can be replaced.
The other type of crop-yield insurance is called crop-hail insurance. Farmers purchase this type of insurance from a private insurer. Private insurers can offer crop-hail insurance, because hail does not damage crops in large areas of the country. Therefore, the company is not in danger of being overwhelmed with claims all at once when hail falls in a limited area. The reason that crop-yield insurance for all of the natural disasters cannot be purchased from private insurers is because these companies would not be able handle the multiple claims they would have to process in the event of a large storm.
The other reason that farmers can lose their means of subsistence is if the prices of their commodities go down. In that case, the other type of crop insurance, crop-revenue insurance is needed. Crop-revenue insurance takes the expected crop-yield and the crop price into consideration. If the prices of a particular commodity fall while the crop is currently growing, crop-revenue Insurance will cover the losses. If prices fall in between seasons, the farmers cannot file a claim with the insurance company.
Crop-revenue insurance can be purchased from the same governmental agency that crop-yield insurance can be purchased from. The Risk Management Agency (RMA) is the agency within the United States Department of Agriculture where farmers can purchase policies covering over 100 different types of crops. These policies fall under the name of revenue protection and they insure the crop against losses that occur when the weather destroys the yield and/or the prices fall during the growing season.