Crop insurance provides protection against damage in the field.
Crops may be destroyed by acts of nature, such as hail, flood or fire. Losing a significant portion of annual crops can financially devastate farmers. Crop insurance policies provide payouts in the event of farmers experiencing financial damages from natural causes. The United States government offers a number of programs to help subsidize insurance policies for rural farmers.
History
After the Great Depression financially devastated American farmers, Congress proposed the Federal Crop Insurance Act of 1938. This act failed due to low participation rates and high insurance premiums. In 1980, the U.S. government subsidized private crop insurance agencies to help farmers. In 1996, the Department of Agriculture formed the Risk Management Agency, which was a resounding success with 272 million acres of farmland insured in 2008.
Benefits
The U.S. government believes in supporting crop insurance programs as a matter of national security. Demand for American farm products, both at home and abroad, requires lowering the risk of crop damage to provide farmers with a financial safety net. Since farmers frequently take out loans to finance their crops, crop insurance policies protect the financial sector from loan defaults. Crop insurance policies lower the risk of bankruptcy due to unforeseen weather events.
Process
Although fully private insurers exist, American farmers usually purchase crop insurance policies through 15 insurance companies subsidized by the Risk Management Agency. Farmers pay premiums, either monthly or annually, for coverage. In the event of crop damage, the farmer files an insurance claim and is compensated for damages.
Types
U.S. farmers select from two types of crop insurance policies. Multiple peril crop insurance policies must be purchased before planting crops. This type of policy covers plant disease, freezing, flooding and drought. Depending on their geographical region, farmers may also purchase crop-hail policies.
Cost
The cost of crop insurance policies depends solely on the historical weather risks of a particular state or county. The Risk Management Agency determines maximum rates that private USDA-affiliated insurers may charge. Crop insurers may not pick and choose whom they insure as their relationship requires them to offer policies to every farmer within that region.
Considerations
From Aug. 3, 2008 to Feb. 15, 2009, crop insurance policies paid out close to 6.5 billion dollars to farmers as a result of crop damage. In 2008, crop insurance policies protected roughly 90 billion dollars in agricultural products. U.S. farmers insure a wide variety of cash crops with the most common being corn, cotton, soybeans and wheat.
