How Do Coverage Levels Affect Your Policy?

Your coverage level refers to the percentage of your local average precipitation that your PRF policy insures. Coverage levels can range from 70-90% of the average precipitation within the grids you’ve placed coverage. These levels determine when your PRF insurance policy will trigger indemnities*.

For example, if your coverage level is 90%, then your policy would trigger an indemnity when your insured grids receive less than 90% of normal precipitation during an insured interval**.

Coverage Levels Determine Your PRF Policy's USDA Subsidy

Given the example above, it may seem like a no-brainer to opt for the 90% coverage level, as it's much more likely that your grids would receive less than 90% of normal precipitation than less than 70% of normal precipitation. However, your coverage level doesn’t just affect when you’ll be credited an indemnity, it also affects your potential premium.

This is why you need to consider your risk tolerance and budget when choosing a coverage level with your Redd Summit agent. The USDA subsidy of PRF insurance is dependent on each policy’s coverage level. The 90% coverage level has a subsidy of 51%, where the producer is responsible for 49% of the total premium. The 80 & 85% coverage levels have a subsidy of 55%, where the producer is responsible for 45% of the total premium. Lastly, the 70% & 75% coverage levels have a subsidy rate of 59%, where the producer is responsible for only 41% of the total premium.

This means that while the 90% coverage level could present the most opportunity to be credited indemnities even when precipitation is near normal, it also comes with more potential premium, and therefore more risk, than lower coverage levels.

Although this may seem complicated on the surface, your Redd Summit agent has access to specialized software that can help determine the right coverage level to suit your operation, risk tolerance, and budget.

* Indemnity refers to the money that is credited to your policy each time you receive less than your chosen coverage level of average precipitation during a covered interval.

**  Interval refers to the time period in which you can apply your coverage. PRF insurance can be spread over two-month intervals (Jan-Feb., Feb.-Mar., Mar.-Apr.; etc.) Though you cannot double insure certain months (i.e if you’re covered for Jan.-Feb., you cannot be covered Feb.-Mar., instead your next possible interval would be Mar.-Apr.