The first Crop Insurance policy was developed by Benjamin Franklin. The theory behind the policy was financial reimbursement for the local farmers whose tobacco crop was hailed; it failed miserably. Today, Crop Insurance is a governmentally funded and subsidized program administered by private companies such as Rain & Hail, LLC, ARMtech Insurance Services, Agro National, LLC and John Deere Risk Protection. These private companies are appointed by the government, they then contract with agencies such as Sonnenberg Agency, LLC to sell, service and act as a liaison between the producers and themselves.

It is proven that for every $.45 paid into the Crop Insurance program, $.90 is paid out, this is averaged over the afore mentioned twenty year period. For every dollar paid into the program, $.88 is paid out, this figure classifies Crop Insurance as a Pure Risk Pool. Operating under the original premise of Crop Insurance, producers insuring at the 75 percent level would collect an indemnity one (1) in every six (6) years. When producers insure at the 65 percent level the chance of payment decreases to one (1) in every twelve (12) years. These numbers have changed significantly over the last four years due to the massive drought that has affected most of the country.

Regardless of the type of Crop Insurance policy, all acres of the insurable crop in the county must be insured. Crop Insurance databases must be comprised of at least four (4) years of Actual Production History (APH) yields or Assigned yields. Producers with less than four (4) years of verifiable production records will be given a percentage of the applicable county T-yield from 60 - 100 percent, depending on the available number of years of verifiable production records. Producers with more than four (4) years of verifiable production records will not need the applicable county T-yields to determine coverage; their coverage will be based on their actual production.

There are two (2) types of Crop Insurance policies, Yield Based (APH) and Revenue Based. Either Crop Insurance policy indemnifies the grower for harvested and/or appraised production that is less than the production/revenue guarantee, provided that the loss of production, partial or full, was due to an insurable cause of loss.

Yield Based

Actual Production History (APH) - This policy insures producers against yield losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. The producer selects the amount of average yield he or she wishes to insure; from 50 - 75 percent (in some areas to 85 percent) in 5 percent increments. The producer also selects the percent of the predicted price he or she wants to insure; between 55 and 100 percent of the crop price. This price is established annually by the Risk Management Agency (RMA), the branch of the government that oversees the Crop Insurance Program. If the harvested yield is less than the insured yield, the producer is paid an indemnity based on the difference. Indemnities are calculated by multiplying this difference by the selected percentage of the established price.

Revenue Based

There are two primary types of Revenue Based Insurance products, Crop Revenue Coverage (CRC) and Revenue Assurance (RA). Both products protect the producer from lost revenue resulting from low yields, a decline in price of the insured commodity or a combination of both.

• Crop Revenue Coverage (CRC) - provides revenue protection based on price and yield expectations by paying for losses below the guarantee at the higher of an early-season price or the harvest price.