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Choosing the right crop insurance coverage

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At first glance, the crop insurance decision can appear to be a simple one. For decades, two major types have helped farmers manage their risks—multi-peril and crop hail.

While these two types of insurance have remained fairly straightforward for decades, the decisions surrounding crop insurance have become increasingly complex. Farmers must also consider the level of coverage, the cost of the premiums, farm bill changes, add-on options and much more as they weigh their options each year.

  • Multi-Peril Crop Insurance. The most common type of crop insurance—multi-peril—has covered farmers since 1938. Established and subsidized by the federal government to help the ag industry recover from the Great Depression and the Dust Bowl, MCPI covers loss caused by a range of threats from drought to disease. Farmers must purchase this insurance by March 15 for spring-planted crops and September 30 for fall-planted crops.
  • Crop/Hail Insurance. A private insurance regulated by state governments, crop/hail covers a smaller subset of perils that may include hail, flood, fire, wind or even vandalism. This type of insurance may be purchased at any time throughout the growing season.

Choosing the Right Advisor

The first decision you must make is who to work with. 90% of farmers use multi-peril insurance. The premiums and coverage of which are dictated by the federal government, so it may seem no one advisor has an edge over another. But there are a few advantages a carefully chosen agent may be able to offer.

Tailored Insight

With the right tools and expertise, your agent should be able to understand your situation and what you want your insurance program to achieve for you. They’ll discuss your coverage options, review your numbers and run the scenarios to help you make an informed decision.

Expedited Processing

 You may want to consider working with an advisor who is employed by a processing agency. Typically, these organizations are able to complete your paperwork, submit it to the insurance company and get your policy processed in 1-2 days. This expedited processing buys you more time to review your paperwork, spot errors and make corrections quickly. Smaller organizations without this processing power may take 3-4 weeks to get your paperwork pushed through.

Understanding of Changing Programs

As the MPCI program changes and new private insurance products become available, the right insurance advisor can help you understand which changes and options are relevant to your operation. Make sure they’re willing to take the time to get to know you and your farm well enough to get ahead of the impact so you can make the right decision each year.

Come to the Table Prepared

No matter who you choose to work with, your advisor can only be as useful as the information they’re given to work with. Naturally, you know your operation better than they ever could, so make sure you come to the conversation prepared. When you meet with them to discuss your options make sure to know your costs, comfort with risk, perils and obligations.

Input Costs

It’s not always easy for farmers to nail down their exact costs, but this is one of the biggest pieces of information that will help your advisor guide your decisions. Consider your rent, seed, fertilizer, herbicide, equipment maintenance, etc. Add it all up to determine exactly how much it costs you to farm each acre. With this number, your advisor can help you build a program that ensures you don’t lose money if you’re unable to harvest a single bushel.

Comfort with Risk vs. Reward

Before meeting with your advisor, you should consider how much risk you’re willing to take on. Is it important for you to come out of harvest season with all your debts paid even after a tough year? Do you want to ensure you’re making some level of profit even if it means paying a little more in premiums? Or are you willing to take on more risk to keep premiums from eating into your profits if you have a good yield? Let your advisor know what you expect your program to deliver so they can walk you through the appropriate scenarios.

Perils

Your advisor should have an understanding of perils in your area, but you’ll likely have more specific insight based on the geography of your farm. You may also have a better understanding of whether or not your operation is more vulnerable to different threats based on weather in previous years, the soil you’re working with and the crop you’re growing.

Obligation to the Bank

Newly minted farmers may not have the same decision power as established farmers with deeper pockets and lower levels of debt. If you’ve taken on a loan to fund your operation, that loan may be contingent on you carrying a certain amount of coverage to guarantee you hit your revenue numbers. In this case, you may end up paying the higher premiums to fulfill your obligation to your lender. 

There is a lot to consider when it comes to choosing the right crop insurance program. You’re not only protecting your livelihood, but a legacy you can pass on to future generations. Ultimately the right choice comes down to ensuring you’re able to farm another day after the worst years and maximize your profits in the good years.

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