Crop insurance is a form of insurance which is designed to protect farmers from economic damages caused by everything from a radical decline in crop prices to the inability to plant due to drought. Many governments subsidize their crop insurance, with private companies providing policies which are supported by the government. A variety of insurance products are available to farmers, depending on where they farm, what they grow, and what kind of coverage they need, with most services being provided by insurance companies which specialize in crop insurance and related insurance products.
Farming is a notoriously risky business. Adverse weather conditions such as a sudden frost, hail, tornado, thunderstorm, or drought can cost a farmer a season's crop, and crops are also vulnerable to pest infestations, damage from wildlife, and disease. In addition to all of these problems, farmers are often exposed to financial damage as a result of falling crop costs, rising costs for equipment and supplies, and rising transport expenses. Crop insurance is designed to reduce the financial risk of farming, so that farmers can focus on their work without fretting about a multitude of potential scenarios which could spell financial ruin.
When a crop insurance policy is written, it establishes the specific crop being insured, such as wheat or corn, and describes the nature of the coverage. The most basic coverage usually provides payouts in the event that crops are damaged as a result of weather, disease, pests, or wildlife. More expansive policies can include insurance measures to protect farmers if they are forced to plant late or not at all by the weather.
Policies can also include measures which are designed to protect farmers from revenue fluctuations. When the policy is purchased, the insurer can determine a fair price for the crop, providing a payout if the farmer fails to obtain that price when the crop gets to market. Insurers can also provide coverage against revenue losses caused by a smaller than expected harvest and other problems. A good crop insurance policy will have few exclusions and a detailed discussion of all available coverage.
Crop insurance can get very complex. For this reason, farmers like to work with specialized crop insurance agents when they purchase a policy. The agent can discuss all of the options with the farmer, provide some estimates of premiums for insurance policies of various levels, and provide recommendations about the best insurance to purchase. As with any insurance policy, the buyer must balance the cost of the premium against the potential financial damages which might occur without insurance.