Agricultural Insurance Key Terms

Heighten your knowledge of agricultural insurance by learning key concepts and definitions
By Christine Foley Agricultural insurance is a method through which farmers and other individuals involved in the production and sale of agriculture products can protect their crops, landscapes and investments in the event of a disturbance. Many farmers would not choose to operate their business without any type of agricultural insurance or crop insurance, as it is very beneficial. Any industry has its key concepts that people must be aware of and agricultural insurance is no different. Following are some of the most prevalent agricultural insurance key terms.
 

Actuarial

Actuarial calculations and principles are those made by the actuary, or the individual responsible for assessing the probability and statistics of certain events happening. The insurance company then uses these calculations in order to come up with fair rates for premiums, rates and reserves, as well as dividend calculations.
Try: BNet.com discusses actuarial fairness with respect to agricultural insurance rates in detail.

Adverse selection

When individuals illustrate risks for buying and maintaining agricultural insurance, people call this adverse selection. This may also arise when individuals interested in insurance select only the agricultural insurance most likely to result in a loss.
Try: Read about adverse selection and moral hazard with respect to the need for specialty crop insurance at length at UNM.edu.

Basis of valuation

Basis of valuation is the calculation and the potential amount at which the insurance company has valued the insured property. Companies then use this amount to determine the insured party's total sum insured. For crop insurance policies, the crop's costs of production determine basis of valuation.
Try: Entrepreneur.com reviews the basis of valuation for crop insurance.

Constructive total loss

Constructive total loss occurs when something has damaged the insured party's property so much that the cost to salvage it would not be economical. A constructive total loss differs from an actual total loss in that an actual total loss means that something has completely destroyed the property, not that it simply isn't economical to salvage. For those involved in agricultural insurance, insurance companies will declare constructive total loss when a party's damage levels on their property exceed a specific and pre-determined amount.
Try: TheFreeLibrary.com explores different total losses—including actual total loss and constructive total loss—and situations related to them.

Indemnity

Indemnity is the total amount of money that's payable to the insured party. This can take place in the form of cash, repairs to the property or crop, or replacement or reinstatement. Insurance companies value an indemnity at no more than the total value of the insured subject matter.
Try: SouthWestFarmPress.com discusses 2008's crop insurance indemnity payments, which they estimated in excess of six-billion dollars.

Value

The property that a company insures has a specific value. The value will fluctuate depending on exactly what property it is that a company is insuring.
Try: LSUAGCenter.com discusses the value of nursery crops in detail. Meanwhile, at AGSecure.com, the plant inventory value report is explained as a part of agricultural insurance.