The first federal crop insurance was authorised by congress in 1930. This was an initiative to help the recovery of agriculture from the effects of Great depressions and Dust bowl. FCIC ( Federal Crop Insurance Corporation) was established on 1938 to go with these programmes. It covers the natural disaster which results in planting losses and yield losses. After a major draught in 1988 ad hoc disaster coverage assistance was provided to give relief to the needy farmers.
Contract for Crop Insurance - This might be defined as the commitment between the insured farmers and the their provider of insurance. Both the parties have the right to cancel and terminate the contract at the end of crop year. It may be also automatically renewed for the next year unless the contract was canceled earlier.
According to this contract all acreage has to be insured which will reduce the adverse selection against the insurance provider. The provider of insurance will agree to indemnify or to protect the loss of the insured farmer occurred in that year. It has been found that in most of the cases the insurance covers the loss in yield and this usually exceeds the deductible amount. Nowdays it is found that the insurance products covers the loss of yield and the coverage of the price which may go down for the low market price. It also covers the situations like as the inability for the farmer to plant or the loss of quality of the crops due to adverse weather conditions.