Farm Bill: Crop Insurance Myths and Facts

Farm Bureau is an active member of a coalition of farm and commodity groups, crop insurance companies, lenders, and crop insurance agents that work jointly on protecting crop insurance.  The following fact sheets are products of that coalition.

Myth: Crop insurance is market-distorting and discourages farmers from following market signals.  
Fact:  Markets don’t respond to crop insurance; crop insurance responds to markets.  Crop insurance uses current-season market prices to determine coverage, losses, indemnities and premiums.
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Myth: Crop insurance is over budget.
Fact: Crop insurance costs are currently well below budget.
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Myth: Crop insurance encourages farmers to tear up ground.
Fact: The 2014 Farm Bill expanded the conservation compliance provisions and
Sodsaver provisions. In addition, acres in production and erosion have decreased.
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Myth: Crop insurance discourages farmers from using other risk management tools such as market hedging, crop rotation, and off-farm income. The use of these other risk management tools without crop insurance would be enough risk management for farmers.
Fact: Farming is a risky business, so farmers utilize a multitude of risk management strategies to manage the enormous hazards they face every year when they plant a crop. However, crop insurance is the only risk management tool that farmers can literally take to the bank to prove their ability to pay back annual operating loans required to keep the farm going.
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Myth: Disaster assistance would be better and cheaper than crop insurance.
Fact: Crop insurance provides a certainty to farmers (and their lenders) that ad hoc disaster assistance can never provide. Crop insurance payments are also timely, unlike ad hoc disaster payments which often come years after a loss.
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Myth: Crop insurance is only for big corn, soybean, wheat and cotton farmers.
Fact: Crop insurance is available for more than 120 crops and to farmers of all sizes and in all 50 states.
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Myth: Waste, fraud and abuse are rampant in crop insurance.
Fact: According to the Risk Management Agency (RMA) at USDA, the improper payment rate for crop insurance for fiscal year 2015 was 2.2 percent, which is almost half of the average rate for all government programs (4.39 percent).
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Myth: Crop insurance doesn’t even require a farmer to have a loss.
Fact: Crop insurance requires a deductible to be met before a payment is made. Losses are verified by certified adjusters before payments are made, and these payments are subject to audits.
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Myth: Most ag production comes from large farms that can manage their own risk. Besides, farm household income is up and crop insurance payments are only a small portion of total farm household income so they must not matter.
Fact: Farmers of all sizes utilize crop insurance, and crop insurance provides meaningful collateral to lenders when farmers seek operating capital.
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Myth: The harvest price option eliminates all risk from farming and is unnecessary.
Fact: Even with the harvest price option, farmers must meet a deductible for loss and pay a premium for coverage. Risk still exists for these farmers. The harvest price option simply provides these farmers with the replacement value for their lost crop.
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Myth: Means testing such as adjusted gross income (AGI) limits and premium assistance caps will keep large, wealthy farmers from receiving assistance they do not need.
Fact: Reducing participation from any group of farmers will change the premiums for ALL farmers because it will change the risk pool.
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Myth: Crop insurance makes it more difficult for beginning farmers and ranchers to enter the farming business.
Fact: The 2014 Farm Bill included provisions to make crop insurance an even better risk management tool for beginning farmers and ranchers. These provisions have only been implemented for one full year, yet have had a meaningful impact.
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