| Updated March, 2007 |  |
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File A1-52 |
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Multiple Peril Crop Insurance
Multiple Peril Crop Insurance (MPCI) is a broad-based crop insurance program regulated by the U.S. Department of Agriculture and subsidized by the Federal Crop Insurance Corporation (FCIC). Crops eligible for MPCI coverage in Iowa include corn, soybeans, oats, wheat, seed corn, popcorn, barley, potatoes, sweet corn, canning beans, dry beans, forages, grain sorghum, green peas, tomatoes, and nursery stocks. Not all of these crops can be insured in all counties.
What causes of yield losses are covered?
For most crops, MPCI covers unavoidable production losses caused by drought, excessive moisture, hail, wind, frost/freeze, tornado, lightning, flood, insect infestation, plant disease, excessive temperature during pollination, wildlife damage, fire, and earthquake.
MPCI does not cover losses resulting from poor farming practices, low commodity prices, theft, and specified perils that are excluded in some policies. There are specific restrictions on some crops based on acceptable farming practices.
How much coverage can I purchase?
There are two decisions that determine the amount of protection obtained from MPCI:
- level of yield coverage chosen
- level of price coverage chosen
Your insurance yield is based on your actual production history (APH), which is the average yield obtained on the insured unit for four to ten consecutive crop years.
Level of coverage
You can insure your crop at 50 to 85 percent of your APH yield, in increments of 5 percent.
Your yield guarantee per acre is equal to your APH insurance yield multiplied by the level of coverage you choose.
For what price is my crop insured?
You must select an indemnity price level at which yield losses are converted into cash. For example, 2007 maximum price elections set by the Risk Management Agency (RMA) for selected crops were:
corn |
$3.50/bu. |
wheat |
$2.90/bu. |
soybeans |
$7.00/bu. |
oats |
$1.40/bu. |
grain sorghum |
$2.10/bu. |
You can choose an indemnity price between 60 and 100 percent of these maximum elections. Most producers choose coverage based on 100 percent of indemnity price.
A low cost, minimum level disaster policy, called catastrophic coverage, is available. It insures your crop for 50 percent of your APH yield and 55 percent of the RMA price. More information can be found in ISU Extension Publication FM-1852, Catastrophic Crop Insurance.
How are indemnity payments calculated?
If your actual average yield (adjusted for quality) is equal to or greater than your yield guarantee, no indemnity is paid. If your average yield per acre is less than your yield guarantee, the indemnity paid is equal to the yield difference times the indemnity price, times the number of acres insured.
Indemnity payments are taxable income. However, they can be reported in the tax year following harvest if you normally sell half or more of your crop then.
How much does crop insurance cost?
Premium rates are based on the coverage level chosen, the insurance unit chosen, and the loss history for the county in which you farm. The premium rate, as a percent of the dollar value of protection, also varies with your APH yield.
Your premium per acre is calculated as follows:
insurance APH yield
x percent yield coverage election
x indemnity price election
x premium rate
x subsidy factor
Either basic or optional units are available under MPCI policies. For more information on insurance units, see publication FM 1860 or Information Files Actual Production History for Crop Insurance and Insurance Units for Crop Insurance.
There is also a processing fee of $100 per crop for coverage levels less than 65 percent of APH yield and 100 percent of the RMA price. For higher coverage levels the fee drops to $30 per crop.
You have the option of buying MPCI with or without hail and fire coverage. However, if you choose to opt out of the hail and fire insurance component of MPCI, an equivalent dollar amount of hail and fire coverage must be purchased with a separate hail and fire policy. MPCI premiums will be reduced if hail and fire coverage is excluded.
Premiums are generally due during the normal harvest period. If they are not paid within 30 days of billing, interest may be charged for late payment. If an indemnity is paid, the premium cost will be deducted from the indemnity. Premium payments are a tax-deductible expense.
To encourage broader participation, Congress authorized FCIC to subsidize MPCI premiums. The percent of the premium that is paid from this subsidy varies from 100 percent for catastrophic level coverage to about 38 percent or less for the highest levels of coverage.
Estimated premiums for MPCI and other types of crop insurance policies can be obtained from a crop insurance agent or the following web site: www.farmdoc.uiuc.edu/cropins/.