What is crop insurance?

Crop insurance is a type of insurance in which crop producers/farmers insure their crops to protect it either in case of natural disasters, e.g. hailstorm, floods, insects (e.g. locusts), or pets attack, severe drought, or in the situation of a sudden decline in prices. Farmers pay only a small part of the total amount needed for compensation.

Wheat crop; ready to harvest

What does insurance mean?

Insurance is an agreement between the insurer and insured that is followed by a policy according to which, the insurance company provides financial reimbursement to a person in case of any loss.
These insurance policies act as a barrier against the losses either financial or physical as a result of damage or injury. Insured person gets the compensation from insurance company in case of any harm to the life, vehicles or property against which he has bought insurance policy. However, main focus of this topic is that what is crop insurance?

How does insurance work?

Different insurance policies work in a different way and a person can buy any policy according to his ease and willingness. The most common types of insurance policies are automobile insurance, property insurance, pet insurance and above all the life insurance.
Everyone who is interested in buying an insurance policy must understand that how does insurance work.
Insurance policies mostly work in developed countries, for example, most of the people in the U.S.A have at least one insurance policy. An interesting point is, in the united states there is a proper law to make sure the insurance of cars. While choosing the best insurance policy, one must pay great attention to the crucial components of an insurance policy that are Deductible, premium, and limit of the policy.

Insurance policies consist of deductible, premium, and limit of the policy. In the US, car insurance is required by law.

What are the components of insurance policy?

Most of the insurance policies have some components in common. However, these components can be varied according to the type of policy. Basic components of insurance policies are premium, policy limit and deductible. These components are described as:

1. Premium

Premium of an insurance policy simply means its price that is usually paid on monthly basis or in some companies its annually and considered as insurance cost. Insurer himself decides the premium limit depending upon the risk profile.

2. Policy Limit

The maximum amount that an insurance company will pay to the policy buyer to cover the total loss is called the policy limit. This limit depends upon time duration, amount of loss, or upon the life in case of life insurance.

3. Deductible

Deductible in an insurance policy is the money that a policyholder has to pay by himself before he claims to get loss recovery. It is either submitted monthly or annually depending upon the company policy.

What are the types of insurance?

There are various types of insurance policies that cover everything ranging from life to the vehicle and property etc.
Car insurance

Car insurance covers all the expenses if any damage happens to the car in case of accidents, fire, or theft.

Health insurance

Health Insurance consists of the type of insurance policies that provide an individual the facilities to cover all the expenses in case of unexpected hospitalization or surgical costs if the patient is a policyholder of that company.

Life insurance

Life insurance is an agreement between an insurance company and a policyholder in which the company provides a guarantee to pay the nominated beneficiaries in case of death of a policyholder.

Pet insurance

Pet insurance is another type of insurance policy that covers all the veterinary bills the same as mentioned in health insurance if the pet owner is a policyholder.

Disability insurance

Disability insurance is a contract in which an insurance company provides financial support or income in the times when a worker is not able to perform the tasks.

Property insurance

Property insurance is a term used broadly that actually consists of a series of policies providing property protection, liability coverage, etc. It is further divided into many policies including homeowner insurance, flood insurance, renters insurance, or earthquake insurance.

Liability insurance

Liability insurance is also a kind of automobile insurance. In this type of insurance, if there is a car accident and if the car owner is liable for that accident, then the company will cover the other person’s expenses.

Crop insurance

Crop Insurance is a policy that provides compensation to farmer’s losses in case of natural disasters or price fluctuations.
At present, in the USA, the farmers are paying about 41 percent of the expenses that are needed to cover the insured losses. However, they get much more than this in return if there is any agricultural loss.

Different types of policies are car insurance, health insurance, life insurance, pet insurance, disability insurance, property insurance, liability insurance travel insurance, and crop insurance.

History of crop insurance in America

First, Federal crop insurance policy in the USA was introduced by Congress in 1938 when it passed the Crop insurance act to provide the financial relief to the farmers in case of agricultural losses. Initially, this insurance policy was not successful and faced financial difficulties while paying the claims because of unstable financial conditions.
Then in 1980, Congress again passed a bill to uplift the participation in the Federal Crop Insurance Program to change it into more affordable and reachable and it really worked against all odds.
Now there is a massive success for crop insurance programs that in 2019, peasants bought the crop insurance policies of worth 1.1. At present, the Federal Crop Insurance Program is the most basic risk management program in the U.S. for agricultural producers and an important part of the farm safety net, dealing with the risks associated with price changes and natural disasters.

Crop insurance in Pakistan

Pakistan being an agricultural country earns more than 25% GDP from agriculture. The most famous crops of Pakistan are cotton, rice, wheat, sugarcane, fruits, and vegetables
Pakistan has always been subject to certain natural disasters such as floods, cyclones, severe droughts, and most recently locusts that impart irreversible damage to crops.
Crop insurance policy has been introduced recently in Pakistan and named as takaful crop insurance policy.

Takaful crop insurance scheme

According to the spokesperson of the Punjab agriculture department, the Punjab government is going to start a crop insurance scheme to save the farmers against unexpected crop losses due to disasters or price variations. Farmers have to bear much loss every year if there is heavy rain, locusts attack, or flood that completely destroys their standing or ripe crops. So, this compensation policy will be much more beneficial for the farmers, if it will be applied properly to provide real relief.

Early phase of takaful policy

The first phase of takaful crop insurance policy was started in 2018 where Kharif crop insurance in Sheikhupura, Sahiwal, Lodhraan, and Rahimyar Khan was started. According to this policy, the farmers having 5-acre land will be provided a subsidy of 100pc on the Insurance premium while the peasants owning the land from 5-acre to 25-acre will be provided with a subsidy of 50pc.
This policy will initially be applied to the cotton and rice crops during the first phase.

Second phase of takaful policy

During the second phase, this takaful crop insurance policy will be applied to additional crops consisting of sugarcane, corn, wheat, orchards, and vegetables.

Policy plan

According to this insurance policy, farmers will be provided with compensation either in the case of natural disasters or low outcomes from crops. All the policy system will be online to avoid any kind of issues. In this way, a quick and transparent policy will provide relief to farmers.

Crop insurance policy in Pakistan, named as takaful has started recently. The initial phase will cover certain cities of upper Punjab.

What losses are not covered by takaful?

  • Damage due to war or invasion
  • losses that occur before the disaster or after the harvesting
  • loss due to theft
  • losses because of volcanic eruptions or earthquakes
  • destruction or damage caused by terrorism
  • looses due to farmer’s own disputes or the neglection

Difference between the Rabi crop and the Kharif crop

Rabi crop
Crops that are sown in the winter season, between October to December and are harvested in the months of April-may are called Rabi crops.
examples of these crops are wheat, tobacco, barley, mustard, peas, and grams.

Mustard; an example of Rabi crop
Kharif crops
Crops sown in the rainy seasons are called Kharif crops or moon soon crops. They are cultivated during the months of April to June and harvested in winter from October to December.
Examples include bajra, corn, cotton, rice, sugarcane, etc.

Sugarcane; an example of Kharif crop

Frequently asked questions

Some additional questions regarding crop insurance, asked by many people have been answered below:

1. Why insurance is needed?

Insurance is a kind of barrier or shell that protects an individual against all the losses he can face accidentally and unexpectedly for example a car accident, fire in a factory, hospitalization, surgery, etc. So, insurance is the best way to invest and grow the money in the form of a monthly or annual payment. It is actually a way of managing the risks.

2.How is crop insurance beneficial?

Crop insurance provides the farmers or agriculturalists compensation in case of the losses they face by natural disasters or price fluctuations. Most of the population in Pakistan lives in rural areas, totally or partially relying on crops, so if the crops are wasted it brings great harm to peasants. In these situations, crop insurances provide them much relief.

3. What is an insurance company?

An insurance company is a financial institution that makes contracts with an individual for recovering and paying all the losses he can face regarding automobiles, properties, health, or crops.

4. What are the different kinds of insurance policies?

There are several types of insurance policies, for example:

  • Car/ automobile insurance
  • Pet insurance
  • Property insurance
  • Health insurance
  • Life insurance
  • Crop insurance
  • Liability insurance


Pakistan is an agricultural country and more than half of population lives in rural areas, relying completely or partially over agriculture. Most of the times, crops are destroyed because of natural disasters, for example, earthquake, flood, locusts, or excessive rain. While sometimes, there is unbearable price fluctuation. So, crop insurance policy has been introduced in Pakistan recently, while the developed countries have been providing this relief since long time.

  1. http://www.finance.gov.pk/survey/chapters_18/02-Agriculture.pdf
  2. Insurance: Definition, How It Works, and Main Types of Policies.
  3. Crop Insurance in Punjab Pakistan - Agriculture Insurance | UIC
  4. https://agroinsurance.com/en/pakistan/

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What is Crop insurance?

Crop Insurance is that insurance which is acquired by agricultural producers and farmers to secure their business future. Its is provided by federal government to hand shake with agriculture field. What is crop insurance? Actually crop insurance is there to protect the agriculture and farmer from the loss of crops either from natural disasters like drought, floods and also from financial loses if the prices of crops fall.
Crop field

What are the types of crop insurance?

As we know, crop insurance is to provide reliefs from unexpected events and unexpected losses. So there are two types of insurances for them;

Crop-Yield - Crop yield is to provide expected revenue due to unconditional yields which is the volume of crop harvest.

Crop-Revenue - Crop revenue insurance is there to protect expected revenue comparing with crop selling loses due to price variations in market.

How does Crop Insurance work?

Every year, there’s made an agreement between Approved Insurance Providers (AIPs) and ProAg and between Federal Crop Insurance Corporation (FCIC) for the administration of Crop insurance policy. The government has signed a contract with private insurance policy companies for better opportunities and facilities to people. The companies collect data’s, claims from people, marketing policies and transfers the data to Federal government.

Crop harvest

How crop insurance price is determined?

As we know, crop insurance is to provide relief to agricultural producers and the price of a crop insurance is determined by taking average estimated future prices of the crop. The last assurance is given by multiplying the higher price either the estimated price or the market price of harvested crop.

What is the spring price for crop insurance?

Crop in summer

2020 Crop spring prices are the lower price for crop insurance since last decade. For corn crop, the crop insurance price is 3% low then last year’s policy. It was declared at $3.88 per bushel.

Similarly, for soybean crop, crop insurance price is almost 4% lower than 2019’s prices and it was announced at $9.18 per bushel. And for Spring cotton, the insurance price is 7% less than previous year’s price and is declared at only 68 cents. These are the lowest spring prices for crop insurance.

What is premium in agriculture?

As w know, premium are the paid amounts the the insured person by the insurer for unexpected loses and to reduce its financial risks. This process divides the lose or risk between the insured and the insurer.

In case of crops, annually the premium of 5% is paid by the farmer to cover the lose. Similarly, same amount is also paid by the government for the full transfer of insured money to the sufferer. In this way, loses are covered and full amounts are transferred to the insured person.

How does crop insurance help agricultural productivity?

Crop insurance influences the farmer in various ways like;

  • Protection - Crop insurance provides protection from financial loses and other hazards. In this way, it provides stability to farmers and they work for long term.

  • Technology - Crop insurers are promise to provide new advancements and new machines for crops to get harvest quickly.

  • Awareness Crop insurance staff provides awareness to uneducated farmers that how to grow up their yield and business. They also make people aware from natural climates and hazard of nature to take step regarding their safety and concern.

Frequently Asked Questions

People ask some usual questions before buying this crop insurance;

How much money do crop insurance agents make?

Salaries of crop insurance agents are high because they have to work much for proper details. They are also qualified agents who have proper education of calculation and terms.

According to Salary.com, their salaries fall between 42,200 hundred lakh to 46,000 hundred lakh. That’s why there is much demand n this profession of agriculture.

What percentage of farmers have crop insurance?

In 2018, farmers planted 240 million acres of four major crops which are corn, soybean, wheat and cotton. Crop insurance coverage for these four crops in 2018 is calculated and estimated as 208 million acres which shows that farmers have 87% of crop insurance coverage.


Insurances are there to protect people from financial loses and to support them in case of unexpected horrors and events. What is crop insurance? Crop insurance is for farmers to protect them financially and to give them ease in producing more and more crops which provides food to eat and stablizes the economy of the country. That’s why government provide this insurance policy to farmers.

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