The Basics of Crop Insurance

Crop insurance can be a great addition to a producer’s risk management portfolio. However, as with any insurance coverage, farmers should learn the basics and carefully evaluate the risk, cost, and benefits associated with crop insurance before investing in it. Because much of the cost versus risk analysis is specific to the policy and the producer’s individual portfolio and situation, it is best to discuss options with a local crop insurance agent, who can help develop a risk management portfolio that caters to the farmer’s unique needs. This article only provides a basic overview of crop insurance, how it works, what it covers, and the options a producer has if insurance is not available.

Crop insurance policies are underwritten by the United States government, via the Risk Management Agency (RMA), but are sold by private insurance agencies. Although every policy is different, crop insurance generally provides reimbursement for loss in the event of a natural disaster. More than one hundred crops are covered by policies underwritten by RMA, and the organization continually evaluates new crops for potential coverage. Some crops are covered in one geographic location, but not another, based on what is being grown in the area. However, if insurance is not available for a crop in a specific county, the RMA does accept requests for the next crop year. A crop year is defined as the year in which the crop is harvested.

If crop insurance is still not available, the United States Department of Agriculture (USDA) has a subsection called the Farm Service Agency (FSA), which covers noninsured crops via the Noninsured Crop Disaster Assistance Program (NAP). The NAP provides financial aid to farmers when natural disasters damage or destroy existing inventory, cause low crop yields, or prevent planting in the first place, so long as the farmer has an annual gross revenue of two million dollars or less, and so long as the crop is a uninsurable crop. In order to qualify for NAP coverage, an extensive list of criteria must be met, which can be reviewed at the FSA’s website here.

Because crop portfolios and insurance availability are geographically specific, producers are recommended to see a local specialist and discuss options. An agent can also help you ensure that your documentation is accurate, which will avoid potential underpayments in the case of a claim. Crop insurance might be right for you, and it might be available for the crops in your portfolio, but depending on the level of risk, it may or may not be worth the premiums to purchase coverage.