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How Does Crop Insurance Work?

How Does Crop Insurance Work - Garrett Insurance

You may already have a farm insurance policy if you’re a farmer or rancher. And depending on your coverage, your farm buildings and livestock may already have coverage. It’s also possible that you have a liability policy in case an employee or visitor becomes injured on your property.

But one area you might not have considered is crop insurance. Most farm and ranch insurance types don’t include crop coverage — crops are something you need to insure separately. The right crop insurance policy can protect your financial stability even if your farm suffers a catastrophic loss.

What Is Crop Insurance?

Every business has its share of risks. To protect your revenue and the business as a whole, you need a risk management plan. If you’re a farmer or rancher, crop insurance is an important risk management tool.

Crop insurance protects against unexpected losses from a variety of causes like weather damage, failure of irrigation systems, and fire. Some policies even protect you from revenue loss if the price of a crop collapses.

Note that crop insurance doesn’t protect your whole farm. If you want liability coverage, protection for livestock, or other coverage, you’ll need to look into other farm and ranch insurance types. But if a significant portion of your income comes from crop yields, crop insurance is indispensable. Here’s what you need to know.

The Two Categories of Crop Insurance

There are two main types of crop insurance: federally subsidized multi-peril crop insurance (MPCI) and state-regulated private crop insurance. Most major growers choose MPCI. Growers who are in hail-prone areas or who just want a little extra coverage often add state-regulated private insurance to their existing MPCI.

Federally Subsidized MPCI

This nationwide farm insurance program was established in 1938 to help protect farmers from the effects of both the Great Depression and the Dust Bowl. The reason for the subsidy was simple: crop losses can be catastrophic, so private insurers tend to have problems covering them. As a result, insurance premiums were astronomically high and difficult for farmers to afford.

MPCI has undergone many changes over the years. The most recent was the 2018 Farm Bill. This bill expanded the program to cover specialty crops and farms that spanned across multiple counties.

At one point, this form of farm and ranch insurance was mandatory for commercial growers. But in 1996, that requirement was lifted. Still, MPCI is an essential purchase because it helps protect your financial security in the event of unexpected disasters. And because it is federally subsidized, premiums are low.

What MPCI Covers

This type of insurance covers multiple perils. This means that you will be protected against multiple causes of crop losses. Of course, it doesn’t cover everything. Here are some of the main events you’ll be protected from:

  • Earthquake
  • Damage from wildlife and insects
  • Bad weather (frost, excessive rain, etc.)
  • Fire damage
  • Failure of an irrigation system
  • Disease
  • Volcanic eruptions

The 2014 Farm Act also introduced supplemental coverage that you can add to your existing MPCI. The Supplemental Coverage Option (SCO) gives you increased protection against declines in your revenue and crop yields. And the Stacked Income Protection Plan (STAX) gives you additional protection against losses.

This broad-reaching coverage can mean the difference between continued stability and financial disaster. However, if you are looking to purchase a policy, you will need to do so before you begin planting.

What MPCI Doesn’t Cover

Prior to buying any farm and ranch insurance policy, it’s important to understand coverage limits. MPCI covers a lot, but there are several things it doesn’t cover:

  • Losses due to irresponsible farming practices
  • Losses due to theft
  • Damage to farm infrastructure (barns, storage bins, etc.)

Before you buy any coverage, one of our knowledgeable agents can review your policy with you and help ensure it covers everything you need.

State-Regulated Private Crop Insurance (Crop-Hail Insurance)

If you want to enhance your coverage while still paying relatively low premiums, you might consider investing in private crop insurance. This type of coverage, called crop-hail insurance, helps fill in some of the gaps left by MPCI.

Based on the name, you might think that it would only cover hail damage. However, most insurers also give you the option to buy extended coverage. Some policies will even cover other natural damage (wind, lightning, etc.), protection from vandalism, and protection against malicious mischief. They also may offer additional protection for your crops while they are in storage or in transit.

How Crop-Hail Insurance Works

Crop-hail insurance is a bit different from MPCI in that you can purchase it at any point during the growing season. It is also designed to cover so-called “spot losses.”

If you’ve ever had the misfortune of dealing with hail, you know that it can utterly destroy a small area of a field while leaving the rest unscathed. That’s why crop-hail insurance offers coverage by the acre.

This type of farm insurance also tends to have low deductibles. MPCI is designed to protect your farming operation against massive losses, so deductibles tend to be high. If you want to protect yourself against smaller losses, a low-deductible crop-hail policy might be a good idea.

How Crop Insurance Claims Work

If you need to file an insurance claim, it’s important to know what to do. Should your crops suffer some type of damage, you should start the process by getting in touch with your agent as soon as possible (most insurance companies require you to make a report within 72 hours). If you reach out by phone, make sure to follow up the call in writing.

Once you’ve gotten in touch, your agent will contact an insurance adjuster. The adjuster will then inspect the damage and go over your policy’s options with you.

It may take a few days for an insurance adjuster to visit your property. In the meantime, make sure you don’t destroy any of the evidence. If you plow, replant, or otherwise alter the scene, the adjuster won’t be able to make a full assessment, and your claim may be denied as a result.

Keep Your Business Safe With Crop Insurance

Garrett Insurance is a family-owned independent insurance agency. We’ve been in the business of protecting you and your family since 1918, and we remain committed to helping you find a policy that fits your needs. Our agents take the time to understand your needs, explain your options, and help you choose the right farm insurance.Are you ready to find the right crop insurance policy? If so, reach out to one of our farm and ranch insurance agents today.

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