At NorthStar Agency, we understand farming and crop insurance.
Crop insurance is essential to farmers’ livelihood and has never been more important than now. Recent climate change has brought unexpected weather conditions and, in turn, greater risks in the past decade. Farmers have two options when it comes to insuring their crops: multiple peril crop insurance (MPCI) and crop-hail insurance. While all weather conditions present risk, hail is unusual because it can completely obliterate part of a field while leaving the rest virtually untouched, it is difficult to predict and it occurs suddenly.
Crop-hail insurance is different than MPCI because it is not part of the federal crop insurance program. Instead, private crop insurance companies sell these policies, and the premiums are not subsidized.
Another key difference between the two types of coverage is that, unlike MPCI, farmers may purchase a crop-hail policy at any time during the growing season. Also, while MPCI policies tend to have high deductibles to cover catastrophic loss of huge yields, crop-hail allows for a smaller deductible to cover spot losses.
Many MPCI policies already include some coverage for hail damage, so crop-hail is intended to offset that deductible and provide protection on an acre-by-acre basis. That way, if there is damage to only part of the farmland, which is not an uncommon pattern for hailstorms, you may still be eligible for payment.
Multiple-peril crop insurance (MPCI) provides farmers with protection against losses due to weather and other perils for more than 100 crops across the country. Though it varies widely by policy and depends largely on the type of crop insured, some examples of covered hazards include damages from adverse weather, natural disaster, insect infestation, disease and wildlife damage. MPCI will never cover losses resulting from irresponsible farming practices, low prices or theft, though depending on the crop, it may cover costs of late planting, replanting, poor-quality yields and low yields.
The U.S. Department of Agriculture (USDA) manages MPCI through a public-private partnership, meaning the federal government subsidizes the premiums, but private companies write all MPCI policies. There are currently 15 companies authorized by the USDA to provide MPCI coverage, and you can find that list here. The USDA requires these companies to sell MPCI policies to any eligible farmer who requests it, and the USDA Risk Management Agency (RMA) uniformly sets all the rates and determines what crops may be insured in which regions of the country.
The RMA calculates amount of MPCI coverage based on the actual production history (APH) for each farm. APH numbers come from farmer production records from the past four, and up to the past 10, consecutive crop years. Coverage levels generally range from 50 to 85 percent of the farm’s APH.
A MPCI policy also requires election of an indemnity price, which can be anywhere between 60 and 100 percent of the Federal Crop Insurance Corporation (FCIC) expected market price. Indemnities are paid when the grower’s yield falls below the calculated yield guarantee (APH times the insured acreage times the level of coverage times the farmer’s elected share).
Obviously, electing a higher indemnity price will result in higher indemnity payments and more expensive premiums, but in years with low yields or in the event of loss, the compensation will be much greater.
Unlike a crop-hail policy, which farmers may purchase at any time during the growing season, you must purchase an MPCI policy prior to planting. It is a continuous policy that will remain in effect for each crop year following acceptance of the original application. Farmers may change the policy on or before the sales closing date, and cancellations may only be made after the first effective crop year.
There are endless benefits to purchasing a MPCI or Crop Hail policy, among them confidence, stability, improved financial management and comfort in knowing there is a safety net for unexpected loss and associated costs. Contact us or call us at 712-362-2606 to learn more about your MPCI options.