Source: FARM DOC DAILY, UNIV OF ILLINOIS, 2/7/17


Many producers are seriously evaluating their crop insurance budgets and coverage options in light of changing prices and premiums. Crop insurance premiums are determined each year based largely on several factors including the indemnity price of the insured commodity, on the user's yield and risk characteristics, and on a large number of actuarial factors established by the Risk Management Agency (RMA) based on prior loss experiences. The premiums are determined in a manner intended to be "actuarially fair", or to result in a loss ratio that equates premiums paid in and premiums paid out over time. The RMA applies a farmer-based subsidy that varies by coverage type and coverage election level, and offers both farm-level and area products for either revenue or yield. In addition to the already long list of options, the unit type and practice also influence both effective coverage and subsidy. As a result of all the possible combinations, a farmer could have well over a hundred combinations of inputs and premiums to evaluate each year. Most of the policies sold through time have gravitated toward higher coverage revenue products, but it remains important to understand the options available and evaluate the coverage offered by each combination for a producer's situation. 

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