Why You Need Insurance
"Be Prepared!" That's good advice for farmer's. In fact, one of the most difficult tasks farmers face is being prepared for unknown events. Being prepared means not only avoiding and/or minimizing negative events, but being able to take advantage of positive events. This is the essence of risk management; being prepared to successfully respond to unforeseen negative and positive events.
With the changes in the government farm program, the result is that farmers now have both the freedom to succeed and the freedom to fail. With the responsibility to manage risk placed squarely back on each individual farmer, the need for successful planning is critical. A major crop loss without insurance would not only be a crop disaster, but the likely end of the farm because the federal government is no longer in the business of handing out disaster payments. A favorable swing in crop price, without a marketing plan to take advantage of this swing will be more than a missed opportunity, it will be a major reduction in farm business profit because profit margins will be narrower.
Crop insurance can be successfully used to address the three basic sources of farm financial risk. Meeting cash flow requirements in a timely fashion is enhanced through crop insurance indemnity payments. Debt capital is easier to obtain and more secure with crop insurance, especially when there is an assignment of indemnity so that the lender directly receives the indemnity payment from the insurance provider. And, maintaining and increasing equity is easier to accomplish with insurance protection. Otherwise, significant losses are financed out of the owner's equity instead of indemnity payments.
No two farmers have the same needs. Make sure your crop insurance agent clearly understands your situation so that you can be assured of getting the best crop insurance program possible.
Ask yourself these key questions:
