What is the Difference Between Farm and Crop Insurance?

Farmers and ranchers engage with large amounts of risk everyday. Farm and crop insurance options have sprung up over the years to help farmers mitigate some of the risks they deal with. However, even though the terminology sometimes gets used interchangeably, these two categories of agriculture-related insurance often work with very different parts of a producer’s risk management strategy. So, how do the two differ?

To begin, let’s talk about crop insurance. Crop insurance is a federal program designed to provide risk management strategies to farmers and producers to ensure that they can remain profitable with volatile fluctuations in pricing and yields. These programs all specifically deal with yield loss, revenue loss, market fluctuations, and rainfall. Crop insurance deductibles are based on the percentage of loss of yield or price and are not out-of-pocket expenses.

While MPCI, (multi-peril crop insurance), the main crop insurance program, is federally backed and regulated, the insurance products are distributed by approved insurance providers (AIPs) with the help of crop insurance agents. AIPs are state-chartered property and casualty insurance companies that have agreements with the Federal Crop Insurance Corporation, such as standard reinsurance agreements or livestock price reinsurance agreements. This authorizes those AIPs to sell federal crop insurance options as regulated by the USDA.

Approved insurance providers can also offer additional crop insurance options through policies known as private products. These are specialized crop risk management options that are offered and backed by specific AIPs. As MPCI products have fixed prices set by the federal government, the AIPs use these private products to differentiate and add additional value.

Private products often work with or enhance federal crop insurance options for an additional cost. As these programs are offered by each AIP individually, the federal government will not subsidize any premiums due for a private product. The AIP can also choose the pricing structure and where to offer the product. This is why Private crop insurance agencies are important, as they can work with AIPs to provide multiple private product options as opposed to just the offerings from one AIP. The agency can then compare the products available to help provide the best option for your operation.

Farm insurance policies are generally a type of property and casualty (P&C) insurance. These policies generally look to cover a producer’s physical assets and the liability that may come from ownership of those assets. Commonly covered items are liability, home and contents, farm personal property, and farm structures.  (Farm Office, Ohio State University Extension). Many policies are built to cover farm vehicles and equipment as well, though to know exactly what your policy will cover, it may be best to speak with a farm insurance agent.

As with most insurance, the levels of coverage and premiums can vary based on the risk assessment and the company selling the insurance. Policies often have exceptions that would cause certain situations not to be covered, so it is best to pay close attention to the policy language, and or find a trustworthy agent to help walk through the policy.

Some farm insurance policy options can also cover livestock mortality and liability. Policy options can range from coverage for hunters accidentally mistaking an animal as game, livestock transit issues, unexpected weather issues like lightning or hailstorms, and more. Some insurance options also help cover liability issues should a producer’s animals cause damage to people or property. Again, it is important to connect with a trustworthy agent to make sure your farm insurance policy fits your operations’ specific needs.

Farm insurance is typically run through companies and corporations. These companies will cover the expenses of claims through their own cash, and reinsurers when a claim comes in.  Reinsurance companies provide insurance to the regular insurance companies, allowing regular insurance companies to transfer some of the risk.

Several major differences make crop insurance distinct from farm insurance. In general, Farm insurance covers what you do have, such as buildings, vehicles, and personal liability potential, while crop insurance covers what you could potentially grow, and is rated based on past yields.  As such, it is important to be able to distinguish between the two to avoid painful risk management mistakes. Let’s take a look at the main differences below.

Is farm insurance subsidized?

No, typically, farm insurance generally has no subsidy options.

Is crop insurance subsidized?

Yes! Many policy types and options have government subsidies available.

Does farm insurance cover if I lose my crop?

No, farm insurance typically does not cover crop losses that occur in the field. However, some policies can cover stored grain if it’s stored on your property.

Does crop insurance cover if I lose my crop?

Yes! Generally, crop insurance covers crop yield and revenue losses, as well as market fluctuations.  Other, more specialized plans may vary in exactly how they cover these problems.

Who or what backs farm insurance?

Farm insurance is run and backed by private insurance companies. These private companies may utilize reinsurance companies to mitigate risk.

Who or what backs crop insurance?

Crop insurance is backed and regulated by the federal government. The government enters into contracts with private companies (AIPs) that administer and distribute the program. Additionally, some select crop insurance options are offered and backed by specific approved insurance providers.

Does farm insurance cover my property? Like structures and farm machinery?

Farm insurance can cover farm property such as buildings, farm equipment, vehicles, and more. Make sure to consult with your farm insurance agent to see exactly what your policy will cover.

Does crop insurance cover my property? Like structures and farm machinery?

Crop insurance does not cover farm property such as buildings, farm equipment, vehicles, and more. Crop insurance specifically covers yield and revenue loss, and market fluctuations on farm commodities, such as corn, cotton, hogs, and more. Make sure to consult with your crop insurance agent to build a risk management policy that works with your operation.

Is there a farm insurance policy to cover my livestock?

Farm insurance does have policy options that cover livestock mortality, and the liability of someone getting hurt by one of your animals. Make sure to check with your agent to see exactly what is covered in your policy.

Is there a crop insurance policy to cover my livestock?

Crop insurance does not have options to cover livestock mortality. Instead, crop insurance programs typically cover price fluctuations, gross margins, and revenue losses associated with livestock. Many of the rainfall index programs are also considered livestock programs, such as PRF.

Does farm insurance cover personal liability if someone were to get hurt on my farm, or in case of accidental property damage?

Yes, depending on the policy, farm insurance can cover personal liability issues. As with most insurance-related questions, make sure to check with your agent to see exactly what the policy will cover.

Does crop insurance cover personal liability if someone were to get hurt on my farm, or in case of accidental property damage?

No, crop insurance does not provide coverage for any personal liability issues.

While these are a series of basic differences, each scenario a producer may face is different. This is why it is important to work with good, knowledgeable insurance agents who can help you navigate the complexities of each type of insurance.

There is a lot of risk involved with farming and ranching, which is why you want to make sure you have the best and brightest crop insurance agents helping you discover what works for your specific operation. At Silveus Insurance Group, we pair expert agents with powerful software to help you build a risk management strategy that works for your operation. To get connected with one of our crop insurance agents, fill out our contact form!