Area Risk Protection
The Area Risk Protection plan of crop insurance is based on an AREA level, obviously :) Individual yields are not material. There is no individual protection. A grower could sustain a loss, individually, and not receive an indemnity.
Area, or macro plans, are best tailored towards producers who consistently yield below the county average. In my OPINION, anytime you take an area level plan, it is important to take the highest level of coverage available.
Here are a couple things to remember for the Area Risk Protection:
No Unit Structure (doesn’t go by basic, optional, or enterprise units)
No replant or prevented plan coverage
No claim loss notice is needed
Losses are determined by comparing county expected yield with the final county yield.
Plans of Insurance (Choose 1):
For this type of insurance, there are currently three types you can choose from:
1. Area Yield Protection - provides protection against loss of yield due to a county level production loss.
2. Area Revenue Protection – provides protection against loss of revenue due to a county level production loss, a price decline, or a combination of both. This plan also includes upside harvest price protection.
3. Area Revenue Protection with Harvest Price Exclusion – provides protection against loss of revenue due to county level production loss, price decline, or a combination of both. This plan does not provide upside harvest price protection.
Coverage Level - After you decide which plan of insurance you want, you need to decide which Coverage Level you want. Insureds may select different coverage levels listed in the actuarial documents by Crop/Practice/Type. For example, you may choose a 75% coverage level for irrigated corn, and maybe a 90% coverage level for non-irrigated corn. For all acreage of the insured crop in the county you must select the same plan of insurance. By crop and by county, so you could select other options for other crops/other counties.
Protection Factor (Choose from 80% - 120%):
After you decide which plan of insurance you want to go with and the coverage level you want, you then need to choose a Protection Factor. The protection factor is the % money that is paid out, if there is a claim/indemnity payment.
The higher percentage you go with, the higher your premium is, but when dealing with area level plans, instead of individual plans, it is important to have a higher level of coverage. The protection factor is the percentage used to calculate the dollar amount of insurance per acre and the policy protection.
Choose a protection factor from a range of 80%–120% as a whole percentage (in 1% increments) from amounts specified in the special provisions.
Example
Here is an example of how an Area Revenue Protection plan may work if you need to file for a claim/indemnity payment. This is NOT an offer of insurance and is subject to various options and other factors on your policy, so talk to your crop insurance agent, as this will just give you an idea of how this plan may work.
*As a reminder, the Projected Price is the price set by the USDA before you even plant the crop, and the Harvest Price is the price set by the USDA around the time of harvest. If you choose the second plan of insurance listed above, that is the Area Revenue Protection shown in this example, payment will be based on the higher of the two prices.
Step 1: Expected County Yield x Projected Price or Harvest Price (whichever amount is higher) x Protection Factor % = Policy Protection per acre
Step 2: Expected County Yield x Projected Price or Harvest Price (whichever amount is higher) x Coverage Level % = Trigger Revenue
Step 3: Final County Yield x Harvest Price = Final County Revenue (If this # is less than the trigger revenue in Step 2, then there “should be” a payment
Pretty straightforward so far, right? Sorry, Step 4 is a doozie.
Step 4: Trigger Revenue (from Step 2) - Final County Revenue (from Step 3) = Value Y
Then Take Value Y ÷ sum of (Trigger Revenue (from Step 2) - sum of (Expected County Yield x higher of the projected price or harvest price x 0.18)
= Payment Factor
Step 5: Payment Factor (from Step 4) x Policy Protection per Acre (from Step 1) = Total Indemnity/Claim payment per acre
Wow, that was a lot! I’ve always thought that the Revenue Protection Plan and Yield Protection Plans are much more straightforward when thinking about how much you may qualify for on a claim payment. With this Area Risk Protection plan, the USDA threw in the Protection Factor and a loss limit factor, which makes everything much more difficult to understand.
Loss Limit Factor
Unless otherwise specified in the Special Provisions, a factor of .18 is used to calculate the payment factor (as you can see in Step 4, above). This factor represents the percentage of the expected county yield or expected county revenue at which no additional indemnity amount is payable. For example, if the expected county yield is 100 bushels and the final county yield is 18 bushels, then no additional indemnity is due even if the yield falls below 18 bushels.
Some of the factors that are needed to provide a quote for how much this plan will cost you are (not limited to) what crop are you growing, what county and state are you in, what is the county yield, and what options you would like to add to the base policy.
I would love to get you a quote if you are interested in this plan, so please reach out with any questions you may have.
Updated 5/14/2025
This information is not all inclusive and is meant to be used for general guidelines for educational purposes only. You the reader assume full responsibility for how you choose to use it. For additional information, please see crop provisions, reference the crop insurance handbook or loss adjustment manual, or contact your crop insurance agent. This institution is an equal opportunity provider and employer.