Every year Iowa farmers face the threat of damage to their crops from drought, hail, flood, insects, and other natural disasters. The U.S.D.A. Risk Management Agency (RMA) and private crop insurance venders have developed a set of insurance programs to help control crop production risks at a reasonable cost. Crop insurance coverage is not mandatory, but it does provide a financial safety net in case of severe production losses.

Edwards, William M.

English

Research Papers in Economics

Managing Risk with Crop Insurance 
 
 
 
Every year Iowa farmers face the threat of damage 
to their crops from drought, hail, flood, insects, and 
other natural disasters.  The U.S.D.A. Risk 
Management Agency (RMA) and private crop 
insurance venders have developed a set of insurance 
programs to help control crop production risks at a 
reasonable cost.  Crop insurance coverage is not 
mandatory, but it does provide a financial safety net 
in case of severe production losses. 
Crop producers in Iowa can choose from among the 
following general types of crop insurance: 
•  Multiple Peril Crop Insurance 
•  Catastrophic Insurance 
•  Crop Revenue Insurance 
•  Group Risk Plan 
•  Supplemental Coverage 
 
Multiple Peril Crop Insurance 
Multiple Peril Crop Insurance (MPCI), also known 
as Actual Production History (APH) insurance, 
protects against production losses from a wide 
range of natural causes.  Producers can choose to 
insure their crops at levels ranging from 50 to 85 
percent of their actual production history (APH) 
yield.  These bushels can be insured at a price 
ranging from 60 percent to 100 percent of the 
insurable market price set by RMA each year. 
If the farm’s actual yield is less than the guaranteed 
yield, the MPCI payment is equal to the production 
deficit multiplied by the price election. 
Premiums increase in direct proportion to the price 
coverage level selected, and at an increasing rate 
for higher yield guarantees.  The level of 
government subsidy of the MPCI premiums ranges 
from 100 percent at the lowest yield and price 
coverage level (catastrophic) to over 38 percent at 
the maximum coverage level.   
 
 
 
Prevented and delayed planting provisions have 
been very important to Iowa producers in recent 
years.  When planting is delayed, the level for the 
yield guarantee on the insured crop is reduced by 1 
percent per day for the next 25 days.  Delayed 
planting provisions take effect after June 1 for corn 
and after June 16 for soybeans. 
If no crop at all can be planted (prevented 
planting), the guarantee remains at 60 percent of 
the original level.  Prevented planting provisions 
apply after June 25 for corn and after July 10 for 
soybeans.  Prevented planting coverage can also be 
raised to 65 or 70 percent of the original level, for 
an added premium. 
For more detailed information on MPCI crop 
insurance see ISU Extension publication FM-1826, 
Multiple Peril Crop Insurance. 
 
Catastrophic Insurance 
Catastrophic insurance (CAT) is a minimum 
coverage MPCI policy that protects against yield 
losses in excess of 50 percent of the APH yield.  
Losses are paid at the rate of 55 percent of the 
RMA expected market price. 
The farmer pays no premium for CAT, but there is 
a $100 processing fee for each crop and farm unit 
insured.  Small policyholders who have a total 
coverage guarantee of less than $500 for a crop are 
exempt from paying the processing fee.  For corn 
and soybean producers this amounts to about five 
acres of production. 
CAT offers partial protection against significant 
crop failures at a low cost, and is a useful option for 
producers with high risk-bearing ability.  It replaces 
the ad hoc crop disaster programs offered by 
USDA in the past.  For more information about 
CAT insurance see ISU Extension publication FM-
1852, Catastrophic Crop Insurance. 
 
 
 
FM-1854 | Revised | March 2003 Crop Revenue Insurance 
Revenue insurance protects against reductions in 
both price and yield rather than yield alone.  Three 
different individual revenue insurance plans are 
available to Iowa producers. 
Crop Revenue Coverage (CRC) is available for 
both corn and soybeans in Iowa.  Part of the 
revenue guarantee is based on the APH yield, just 
as for an MPCI policy.  However, the insurable 
price level is equal to 100 percent of the average 
new crop futures market price during the month of 
February rather than the RMA expected price.  The 
insurable price times the APH yield times the level 
of coverage chosen equals the gross income 
guarantee.  Coverage options are 50, 55, 60, 65, 70, 
75, 80, and 85 percent. 
If prices for the insured crop are higher by harvest 
time, the revenue guarantee increases accordingly, 
with no additional premium.  The maximum 
increase in the insurable price is $1.50 per bushel 
for corn and $3.00 per bushel for soybeans.  The 
revenue guarantee cannot be lowered, however. 
If the producer’s actual gross revenue, calculated as 
the actual yield times 100 percent of the new crop 
futures price at harvest, is below the insured level 
an indemnity payment equal to the difference is 
paid.  Thus, indemnity payments can be triggered 
by various combinations of low prices and low 
yields. 
A similar plan, called  Income Protection, is 
available in certain Iowa counties for corn and 
soybeans.  The Income Protection plan uses the 
new crop futures prices during February to set the 
level of gross income protection, but protection 
levels do not increase if prices rise by harvest.  It 
insures all of a producer’s corn acres as a single 
unit, whereas the CRC plan allows separate units 
for farms in different townships. 
A third revenue insurance plan, called Revenue 
Assurance (RA), also guarantees a minimum gross 
income per acre for corn or soybeans.  The price 
used to calculate the income guarantee is also the 
average of the new crop futures price in February.  
The yield levels used to calculate the guaranteed 
revenue per acre can range from 65 to 85 percent of 
the APH yield. 
The fall price used to calculate the actual revenue is 
the average futures market closing price during 
October for soybeans and November for corn. 
Under the standard RA contract the revenue 
guarantee does not increase if prices rise between 
February and harvest.  RA does offer an increased 
guarantee when prices rise as an option.  However, 
premium costs will generally be lower without this 
feature. 
For more information about crop revenue insurance 
see ISU Extension publication FM-1853,  Crop 
Revenue Insurance. 
 
Group Risk Plan   
Group Risk Plan (GRP) insurance protects 
producers against a widespread crop failure.  If the 
average yield for the county in which the insured 
crop is located falls below the trigger level chosen, 
the producer receives a payment, regardless of the 
farm’s individual yield. 
Policies with trigger levels of 70 to 90 percent of 
the long-term expected county yield can be 
purchased.  Rather than selecting a price guarantee, 
the producer selects a dollar value of coverage per 
acre.  The maximum dollar value that can be 
chosen is equal to 150 percent of the guaranteed 
county yield multiplied by the current RMA 
expected market price.  Premiums increase in direct 
proportion to the dollar coverage selected, and at an 
increasing rate for higher trigger yields. 
Gross revenue can also be insured under a group 
risk policy.  This plan is known as Group Risk 
Income Protection, or GRIP. The income guarantee 
level is based on the county expected yield and the 
average futures price during the last 5 days of 
February. Likewise, the actual gross revenue is 
based on the actual county yield and the average 
futures price at harvest. Trigger levels and 
indemnity payments for GRIP are calculated in a 
manner similar to that used for GRP. 
The GRP and GRIP policies generally have lower 
premiums than comparable MPCI coverage, and do 
not require any farm production history.  This 
makes them attractive to producers who have no 
production records, or a low APH yield.  Producers 
whose farm yields closely follow the year-to-year 
pattern of the county averages received the most 
risk protection from GRP. Because payments are 
not based on individual farm yields, however, some 
short-term yield risk remains. Generally, GRP and GRIP  will result in smaller, but more frequent 
indemnity payments. 
Supplemental insurance for localized hazards such 
as hail is a good complement to the Group Risk 
Plan policy.  For more information about GRP and 
GRIP insurance see ISU Extension publication FM-
1850,  Group Risk Plan and Group Risk Income 
Protection. 
 
Supplemental Coverage  
Private insurance companies have developed a 
variety of policies that supplement the coverage 
available under the standard MPCI policies. 
The most common supplemental policy used in 
Iowa is companion hail insurance, which generally 
has a lower deductible loss than MPCI, but for hail 
damage, only.  If companion hail insurance is 
purchased, coverage for hail damage can be 
removed from the MPCI policy and the premium 
reduced. 
Other supplemental policies are available which 
effectively raise either the bushel guarantee or the 
price guarantee offered by traditional MPCI or 
revenue insurance.  Of course, all these 
supplemental policies require extra premium costs, 
so are generally used only by producers in a high 
risk position. 
 
Summary  
The tables in this publication compare some of the 
important features of the different types of crop 
insurance available.  Each type of policy can be 
customized by selecting different price and yield 
coverage levels, add-on features, and insurance unit 
designations.  See your local insurance agent to get 
details   on  coverages  and  premiums  available 
for your own farm. 
 
 
 
Comparison of Crop Insurance Plans
 
Characteristic 
 
 
Multiple Peril 
Crop Insurance 
 
Catastrophic 
 
 
Group Risk 
Plan 
 
Crop Revenue 
Coverage 
 
Revenue Assurance  
 
 
Insures against 
 
Individual 
production risk 
 
Individual 
production risk 
 
County 
production risk 
 
Individual 
revenue risk 
 
Individual 
revenue risk 
 
 
Yield coverage 
 
50 to 85% of APH 
yield 
 
50% of APH 
yield  
 
70 to 90% of  
county yield 
 
50 to 85% of APH 
yield 
 
65 to 85% of APH 
yield 
 
 
Price coverage 
 
60 to 100% of 
RMA price 
 
55% of RMA 
price 
 
90 to 150% of 
RMA price 
 
Higher of futures 
price in Feb. or at 
harvest 
 
 
Futures price in Feb. or 
higher of futures price 
in February or at 
harvest (optional) 
 
Results on which 
indemnity is 
based  
 
Actual yield 
 
 
Actual yield 
 
County yield 
 
 
Actual yield and  
futures price at 
harvest 
 
 
Actual yield and 
futures price at harvest 
 
Insurable units 
 
Basic and optional 
units 
 
Basic units 
 
Enterprise units 
 
 
Basic, optional and 
enterprise units 
 
Basic, optional, 
enterprise and whole 
farm units    Comparison of Crop Insurance Plans-Example 
 
 
Example: Corn, one acre 
   
Multiple Peril 
Crop Insurance 
   
 
Catastrophic 
   
Group Risk 
Plan 
   
Crop Revenue 
Coverage 
  
Revenue 
Assurance 
(Basic) 
                    
APH yield    132 bu.    132 bu.    130 bu. (county)    132 bu.   132 bu. 
RMA expected price    $2.45    $2.45    $2.45    not applicable   not applicable 
Futures price during February    not applicable    not applicable    not applicable    $2.60   $2.60 
Insurance coverage price    $2.45    $2.45    $2.45    $2.60   $2.60 
Yield or revenue election    75% (99 bu.)    50% (66 bu.)    80% (104 bu.)    75%    75%  
Price election    100% ($2.45)    55% ($1.35)    100% ($2.45)    not applicable   not applicable 
Insurance guarantee    99 bu.    66 bu.    $255 ($2.45 x 104)    $257    $257 
Premium    $5    $100 per crop    $6    $9   $5 
Results: low yield, high price                  
Actual yield    50 bu.    50 bu.    75 bu. (county)    50 bu.   50 bu. 
Harvest futures price    not applicable    not applicable    not applicable    $3.80   not applicable 
Harvest insurance price    not applicable    not applicable    not applicable    $3.80   $2.60 
Harvest insurance guarantee    no change    no change    no change    $376 ($3.80 x 
    132 x 75%) 
 no change 
Actual crop value    not applicable    not applicable    not applicable    $190 ($3.80 x 50)   $190 ($3.80 x 50) 
Insurance payment received    $120 
(49 bu. x $2.45) 
  $22 
(16 bu. x $1.35) 
  $71    ($255 x    (104 
- 75) / 104) 
  $186 
($376 - 190) 
 $67 
($257 - 190) 
Insurance payment less premium    $115    $22    $65    $177   $62 
Results: low yield, avg. price                   
Actual yield    50 bu.    50 bu.    75 bu. (county)     50 bu.   50 bu. 
Harvest futures price    not applicable    not applicable    not applicable    $2.90   not applicable 
Harvest insurance price    not applicable    not applicable    not applicable    $2.90   $2.60 
Harvest insurance guarantee    no change    no change    no change    $287 ($2.90 x  
    132 x 75%) 
 no change 
Actual crop value    not applicable    not applicable    not applicable    $145 ($2.90 x 50)   $145 ($2.90 x 50) 
Insurance payment received    $120 
(49 bu. x $2.45) 
  $22 
(16 bu. x $1.35) 
  $71    ($255 x     (104 
- 75) / 104) 
  $142    
 ($287 - 145) 
 $112  
($257 - 145) 
Insurance payment less premium    $115    $22    $65    $133   $107 
Results: avg. yield, low price                   
Actual yield    125 bu.    125 bu.    125 bu. (county)     125 bu.   125 bu. 
Harvest futures price    not applicable    not applicable    not applicable    $1.90   not applicable 
Harvest insurance price    not applicable    not applicable    not applicable    $1.90   $2.60 
Harvest insurance guarantee    no change    no change    no change    no change   no change 
Actual crop value    not applicable    not applicable    not applicable    $238 
($1.90 x 125) 
 $238 
($1.90 x 125) 
Insurance payment received    $0    $0    $0    $19  ($257 - 238)    $19 ($257 - 238) 
Insurance payment less premium    -$5    $0    -$6    $10   $14 
 
The examples above are for purposes of illustration only.  For specific information on coverages, premiums, and policy 
details see your insurance agent. 
 
Prepared by William Edwards, extension economist, Department of Economics. 
 
 
 
 
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complaint of discrimination, write USDA, Office of Civil Rights, 
 
Room 326-W, Whitten Building, 14
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SW, Washington, DC 20250-9410 or call 202-720-5964. 
 
Issued in furtherance of Cooperative Extension work, Acts of May 
8 and June 30, 1914, in cooperation with the U.S. Department of 
Agriculture.  Stanley R. Johnson, director, Cooperative Extension 
Service, Iowa State University of Science and Technology, Ames, 
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Managing Risk with Crop Insurance

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