SS3 Lesson Note on the Agricultural Insurance

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SS 3: FIRST TERM

TOPIC: AGRICULTURAL INSURANCE

CONTENT:

1. Definition of agricultural insurance.
2. Importance of agricultural insurance
3. Types of Insurance
4. Various Agricultural risks.
5. Insurance Terms
6. The problem of Agricultural Insurance

DEFINITION

Agricultural insurance: Generally, insurance is a form of risk management used to absorb the shock of unexpected loss. Agricultural producers have a series of risks affecting the income and welfare of their households. These are mainly production risks in relation to weather conditions, pests and diseases, and market conditions. Agricultural Insurance can be defined as an agreement where one party (insurer) promises to pay another party (insured) of a sum of money in the event of suffering a specified agricultural loss or damage.

Importance Of Agricultural Insurance

1. It helps to give the farmers or investors peace of mind because the insurance policy will meet the financial consequences of certain risks
2. It inculcates savings habits in farmers to prepare them for future
3. Insurance certificates can be used as collateral security to secure loans from commercial banks by farmers.
4. It helps to contribute to the invisible earnings of the country i.e. foreign exchange
5. Life insurance can be used as a means of preparing for the old age of a farmer
6. Insurance makes funds available for investment in agriculture
7. Losses are controlled by agricultural insurance by reducing the frequency and severity of losses
8. Social benefits such as employment opportunities, job security and continued contributions to nation-building are encouraged by agricultural insurance policy because business is kept alive as long as the financial consequences of certain losses are met by the insurance.

Types of insurance policies

1. Crop insurance
2. Weather index
3. Livestock insurance
4. Blood stock insurance
5. Aquaculture insurance
6. Forestry insurance
7. Green house insurance
8. Agricultural re-insurance
9. Farm vehicle insurance
10. Fire disaster or machines and building insurance
11. Life assurance

1. Crop insurance: this is the most developed form of agricultural insurance. There are four types, namely:
2. Named peril crop insurance; The main feature of this type of crop insurance is that the insurance claim is calculated by measuring the percentage of damage in the field soon after it occurs ( based on production costs).
3. Multiple peril crop insurance: This policy is expressed in terms of guaranteed yield which is between 50%-70% of the expected yield with regards to the nature of the crop and the region in which it is being cultivated. Claims are initiated where the yield of the crop produced falls short of the guaranteed yield in the policy.
4. Crop revenue insurance: the policy holder is guaranteed a certain level of revenue, and the insurer protects the holder from declines in yield and adverse movements of crop prices, If the actual yield received by the producer is less than the guaranteed amount, the insurer will pay the difference.
5. Area yield index insurance: it defines an area called “insured unit”. The insurer makes an index based on a guaranteed yield for the insured unit within a range of 50%-90% of the expected yield. The insurer pays out of the actual yield of the insured crop if the insured unit falls below the guaranteed yield. Payment is normally made six months after harvest
6. Weather index insurance: these products are designed around an index that is highly correlated with loss experiences. The most common index in agriculture is rainfall, if rainfall is less than the index at the specified measurement point over the specified period the insurer will pay out under the contract irrespective of the actual losses of the policy holder.
7. Livestock insurance:

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