Glossary of Crop Insurance Terms

Acreage Report

The acreage report shows the crops you have planted, acreage prevented from planting, what share you have in the crop, where the crop is located, how many acres you planted, the dates you planted and what insurance unit they are located on, the practice.  The acreage report is the basis for determining the amount of insurance provided and the premium charged.

Actuarial Soundness

This is an insurance term that describes a situation where indemnities on average are paid equal to total premiums collected.

Basic Unit

A basic unit is an insurance unit as determined first by crop, then by insured’s share in the crop.   All of the crops’ acreage in the county in which the insured has a 100% share is in the same basic unit.  Crop acreage shared with each different landlord/tenant is in a separate basic unit.

Buy-up Coverage

This refers to crop insurance coverage that exceeds the CAT level.  Coverage is available up to 85% of your average yield.

CAT Coverage

CAT is short for “catastrophic” and refers to crop insurance coverage at the lowest, or catastrophic level.  CAT coverage is set at the 50/55 level, which means that your yield must fall below 50% of your average yield before a loss is paid,  These losses are paid at a rate of 55% of the highest price election.  You must pay an administrative fee of $655 per crop per county to become eligible to receive CAT coverage.

Commodity Exchange Price Provision (CEPP)

A part of the Common Crop Insurance Policy used for all crops for which revenue protection is available.  It is a document which contains the information necessary to derive protected price and the harvest price for the insured crop.

Crop Yield Insurance

Also known as Yield Protection (YP), crop yield insurance pays indemnities to producers when yields fall below the producer’s insured average yield due to most natural causes.  Crop yield insurance is subsidized by the USDA’s Risk Management Agency (RMA).

Disaster Payments

These are direct payments to farmers on an emergency basis when crop yields are abnormally low due to adverse growing conditions.  During the 1970’s, there was a “standing” disaster payments program, with payments made without declaration of a disaster area.  Regular payments ceased after 1981, but  since then ad hoc disaster payments have been specifically approved by the U.S. Congress on a number of occasions.

Discovery/Projected Price

The price established by the Commodity Exchange Price Provisions that drives guarantees and premiums.

Enterprise Unit (EU)

An enterprise unit is a single unit consisting of all of the insured’s insurable acreage for the insured crop in the county – regardless of share, location, FSA Farm Serial Number assignment or practice.  An enterprise unit structure will combine all of a producer’s basic or optional units.

Forward Contract

This is an agreement between two parties that calls for delivery of, and payment for, a specified quality and quantity of a commodity (such as a particular crop) at a specified future date.  The price may be agreed upon in advance, or determined by formula at the time of delivery or other point in time.

Forward Pricing

This is when you agree on a price or a pricing formula for a commodity that will be delivered at a later date.  “Forward pricing” is used broadly here to refer to both hedging with futures options, and forward contracting.

Futures Contract

This is an agreement to buy or sell a commodity of a standardized amount and quality during a specific month in the future, under terms established by the futures exchange, at a price established in the trading pit at the commodity futures exchange.

Futures Option Contract

This is a contract that gives the holder the right, though not the obligation to buy or sell a futures contract at a specific price within a specified period of time, regardless of the market price of the futures contract when the option is exercised.  Options provide protection against adverse price movements.


Also referred to as “yield guarantee”. This is established by your level of coverage multiplied by your average yield.

Harvest Price

A price determined in accordance with the Commodity Exchange Price Provisions and is used to value production to count under revenue protection.


Hedging uses futures or options contracts to reduce the risk of adverse price changes prior to an anticipated cash sale or purchase of a commodity.


This is the money you receive for qualifying losses paid under an insurance policy.  The indemnity compensates for losses that exceed the deductible, up to the level of the insurance guarantee.

Insurance Unit

In general terms, an “insurance unit” is the insured acreage of the crop in the county for which an individual protection amount is provided and from which any harvested and/or appraised “production to count” stands alone to be compared to the protection amount in order to determine any indemnity that may be due.


Financial leverage refers to the use of borrowed funds to help finance a farm business.  Higher levels of debt, relative to net worth, are generally considered riskier.  The optimal amount of leverage depends on several factors, including farm profitability, the cost of credit, tolerance for risk, and the degree of uncertainty in income.

Marketing Contract

This is a contract between you and a processor or handler that establishes a marketing outlet and a price (or a formula for determining the price) for a commodity before harvest or before the commodity is ready to be marketed.

Multiple Peril Crop Insurance (MPCI)

MPCI was established in the 1930’s to cover yield losses from most natural perils.  MPCI operated on a somewhat limited basis up through the early 1980’s when a private/public partnership was established.  At that point, insurance availability was greatly expanded and premium subsidies increased in hopes of replacing the disaster payment program.  Major reforms legislated in 1944 – introduction of a low-cost CAT coverage level, increased premium subsidies, and a requirement that participants in other farm programs obtain crop insurance – increased participation to over 300 million acres, covering the majority of acres of major field crops planted in the United States.

New Producer

A new producer is categorized as one who has not produced the insured crop in the county or has produced the insured crop in the county for two crop years or fewer. The new producer is assigned a T-yield for each crop, county, and practice.

Non-Insured Crop Disaster Assistance Program (NAP)

This program is facilitated by the Farm Service Agency.

Optional Units (OU)

Optional units are a further division of basic units.  Just as the name implies, further dividing basic units into optional units is optional for the insured.  Crop acreage that would be one basic unit may be divided into optional units if the acreage of the insured crop is located in separate legally identifiable FSA Farm Serial Numbers  or the acreage is comprised of practices (i.e. irrigated, non-irrigated or organic). 


The amount of money you pay for risk protection.  Option buyers pay a premium to option sellers for options contracts.  Similarly, the person who buys an insurance policy pays a premium in order to obtain coverage.

Prevented Planning (PP)

Prevented planting is the failure to plant the insured crop with proper equipment by the final planting date designated in the Common Crop Insurance Policy for the insured crop in the county or by the end of the late planting period.  The insured must have been prevented from planting the insured crop due to an insured cause of loss that is general in the surrounding area and that prevents other producers from planting acreage with similar characteristics.


Uncertainty about outcomes that are not equally desirable.  Risk is an important aspect of the farming business.  The uncertainties of weather, yields, prices, government policies, global markets, and other factors can cause wide swings in farm income.  Risk management involves choosing among alternatives that reduce the financial effects of such uncertainties.


Funds provided by the USDA to help offset producer premiums.

Tax Identification Number

As a condition for participation in the Federal Crop Insurance Program, the federal government requires that we collect Tax Identification Numbers (TINs) on the insured entity and ALL persons comprising the insured entity.  The primary use of the TIN is to correctly identify the named insured and any others with an interest of 10% or more in the named farming operation. 


T-yield is an estimated county yield of the insured crop that’s assigned if the insured isn’t able to provide a minimum of four years of actual production history. This differs per crop, per county, per practice.


The amount of something, especially a crop , produced by cultivation or labor.

Yield Floor

The yield floor is a percentage of the applicable “T Yield” based on the number of years of records the insured has provided for the crop and county.