There are two types of crop insurance. First, multi-peril crop insurance is a risk management tool that producers purchase to protect against the loss of their crops due to natural disasters such as hail, drought, freezes, floods, fire, insects, disease and wildlife, or the loss of revenue due to a decline in price. Crop insurance is federally supported and regulated. In 2015, 1.2 million polices were sold protecting more than 120 different crops covering 297 million acres, an area larger than Texas and California combined.
Second, Crop-Hail policies, which are not part of the Federal Crop Insurance Program, are regulated by individual state insurance departments. Many farmers purchase Crop-Hail coverage because hail has the unique ability to completely destroy a significant part of a planted field while leaving the rest undamaged. In areas of the country where hail is a frequent event, farmers often purchase a Crop-Hail policy to protect high-yielding crops.
The Federal program came to prominence following years of costly, inefficient ad hoc disaster bills as a way to speed assistance to farmers when they need it most, while reducing taxpayer risk exposure. Today, crop insurance is a critical risk management tool for farmers and ranchers.
Multi-Peril Crop Insurance Plans
Yield Protection (YP) provides protection against a loss in yield due to unavoidable, naturally occurring events. For most crops, that includes adverse weather, fire, insects, plant disease, wildlife, earthquake, volcanic eruption, and failure of the irrigation water supply due to a naturally occurring event. YP guarantees a production yield based on the individual producer's APH. A price for YP is established according to the crop's applicable commodity board of trade/exchange as defined in the Commodity Exchange Price Provisions (CEPP.) The projected price is used to determine the yield and to value the production to count less than the yield protection guarantee. See actuarial information for availability.
Revenue Protection (RP) provides protection against a loss of revenue caused by price increase or decrease, low yields or a combination of both. This coverage guarantees an amount based on the individual producer's APH and the greater of the projected price or harvest price. Both the projected price and harvest price are established according to the crop's applicable commodity board of trade/exchange as defined in the Commodity Exchange Price Provisions (CEPP.) While the revenue protection guarantee may increase, the premium will not. The projected price is used to calculate the premium and replant payment or prevented planting payment. An indemnity is due when the calculated revenue (production to count x harvest price) is less than the revenue protection guarantee for the crop acreage. See actuarial information for availability.
Catastrophic Risk Protection (CAT) pays 55% of the commodity price and 50% of the approved production yield on crop losses. The premium on CAT coverage is paid by the Federal Government; however, producers must pay a $300 administrative fee for each crop insured in each county.
Basic- All insurable acreage of the insured crop in a county separated by share arrangement.
Optional- A Basic Unit may be sub-divided into Optional Units if each optional unit is located in a separate section or FSA Farm Serial Number (whichever applies,) and there is a discernable break in the planting pattern, and separate production records are proven.
Enterprise- All insurable acreage of the insured crop in a county. Some restrictions apply.