Crop insurance is purchased by agricultural producers, including farmers,
ranchers, and others to protect themselves against either the loss of
their crops due to natural disasters, such as hail, drought, and floods,
or the loss of revenue due to declines in the prices of agricultural
commodities. The two general categories of crop insurance are called
crop-yield insurance and crop-revenue insurance.
Types of crop Policies
Farmers may select from various types of policies. Multiple-peril crop
insurance (MPCI) policies are available for most insured crops. Other
plans may not be available for some insured crops in some areas. Some
policies listed below are not available nationwide; they are tested in
pilot programs and available in selected states and counties.
Yield-based (APH) Insurance Coverage
Actual Production History (APH) - These policies insure producers
against yield losses due to natural causes such as drought, excessive
moisture, hail, wind, frost, insects, and disease. The farmer selects
the amount of average yield he or she wishes to insure; from 50-75
percent (in some areas to 85 percent). The farmer also selects the
percent of the predicted price he or she wants to insure; between 55 and
100 percent of the crop price established annually by RMA. If the
harvest is less than the yield insured, the farmer is paid an indemnity
based on the difference. Indemnities are calculated by multiplying this
difference by the insured percentage of the established price selected
when crop insurance was purchased.
Group Risk Plan (GRP) - These policies use a county index as the basis
for determining a loss. When the county yield for the insured crop, as
determined by the National Agricultural Statistics Service (NASS), falls
below the trigger level chosen by the farmer, an indemnity is paid.
Payments are not based on the individual farmer's loss records. Yield
levels are available for up to 90 percent of the expected county yield.
GRP protection involves less paperwork and costs less than the
farm-level coverage described above. However, individual crop losses may
not be covered if the county yield does not suffer a similar level of
loss. This insurance is most often selected by farmers whose crop losses
typically follow the county pattern.
Dollar Plan - The dollar plan provides protection against declining
value due to damage that causes a yield shortfall. Amount of insurance
is based on the cost of growing a crop in a specific area. A loss occurs
when the annual crop value is less than the amount of insurance. The
maximum dollar amount of insurance is stated on the actuarial document.
The insured may select a percent of the maximum dollar amount equal to
CAT (catastrophic level of coverage), or additional coverage levels.