Added Land: Insurance Options Ahead
Farm land does not change hands very often but when it does the acquiring operator should keep in mind the rules which may affect the operator’s crop insurance benefits covering the newly added land. Failing to understand and abide by the Risk Management Association’s (RMA) rules can cost an operator the maximum guaranteed yields and dramatically reduce the indemnity available under the Multi Peril Crop Insurance (MPCI) policy.
Most types of crop insurance provide some sort of coverage based on projected yields. The projected yields are generally determined by the operator’s historical yields known as an Actual Production History (APH). However, the RMA limits the APH on land added as an Optional Unit (OU) or new Basic Unit (BU) as follows:
1. If the added land is less than 640 acres, RMA will approve APH yield established by the higher of (i) the applicable county average yield for the insured crop (T-Yield) or (ii) the operator’s county average yield for the insured crop (SA T-Yield).
2. If the added land is 640 acres but less than 2000 acres, RMA will approve APH yield established by (i) the applicable variable T-Yield or (ii) the SA T-Yield if the operator requests and receives approval for the SA T-Yield from RMA.
3. If the added land is 2000 acres or more, RMA will only approve APH yield established by the applicable variable T-Yield.
The request for RMA approval of the SA T-Yield on 640 acres or more must be submitted on or before the Acreage Reporting Date (ARD). In the event the request is not made, the operator will be limited to an APH determined by the county average. Depending on the operator, the county average yield may be substantially less than the operator’s average yields on similar crops in the county. A lower APH will lower the guaranteed yields under the policy and consequently lower the insured’s indemnity payment in case of a loss.
Many operators rely solely on their agent to lead them through the process and catch issues such as the newly added land acreage limits. However, an agent is only as good as the information the operator provides. An operator who has a handle on the crop insurance rules will be better prepared to take advantage of benefits others may not request and prevent mistakes which can occur in the computation of the number of acres and types of crops planted.
Crop insurance can be an important safety net. Every operator should take ownership of their insurance needs and the rules governing their coverage to ensure the best insurance coverage is provided.
It’s interesting to learn that crop insurance can help with projected yields. My uncle is looking to expand his farm and is wondering how that will affect his insurance. He should look for other insurance policies where he can save money.