Agricultural insurance policy

An Agricultural Insurance Policy is a financial product designed to protect farmers from losses due to risks such as natural calamities (drought, flood, hailstorm, cyclone), pests, and diseases. In India, the government has implemented several schemes, with the Pradhan Mantri Fasal Bima Yojana (PMFBY) and the Restructured Weather Based Crop Insurance Scheme (RWBCIS) being the most prominent.

What is covered in agricultural insurance policy

Natural Calamities: Losses due to events such as drought, flood, cyclone, hailstorm, landslide, inundation, and cloudburst.

Weather Extremes: Under RWBCIS, insurance is provided against adverse weather conditions like excess or deficient rainfall, temperature extremes, humidity, and other weather parameters that impact crop yield.

Pest and Disease Attacks: Damage caused by pests and plant diseases is included in the coverage.
Post-Harvest Losses: Losses occurring after harvest, particularly from hailstorm, unseasonal and cyclonic rainfall, are covered for a specified period while crops are kept in the field for drying.
Localized Calamities: Coverage for losses due to localized events such as natural fire, landslide, and inundation.
Crops Covered: Food crops (cereals, millets, pulses), oilseeds, and commercial/horticultural crops are included, as notified by the respective state governments.
Coverage is comprehensive, spanning from pre-sowing to post-harvest stages.
Both loanee and non-loanee farmers are eligible to participate.
The schemes are designed to provide financial stability and encourage the adoption of innovative and climate-resilient agricultural practices.

what is not covered in agricultural insurance policy

War and related perils: Losses due to war, nuclear risks, or kindred perils are excluded.

Malicious damage and riots: Damages resulting from riots, strikes, malicious acts, or acts of enmity are not covered.

Theft and burglary: Losses due to theft or burglary of crops are excluded.

Preventable human actions: Damages caused by negligence, poor farm management, or preventable human errors are not covered.
Losses after harvest or improper storage: Any losses occurring after the official post-harvest period or due to improper storage are not covered by the policy.
Normal wear and tear: Gradual deterioration or normal wear and tear of agricultural equipment (for example, pump sets) is not covered.
Grazing by animals: Crop losses due to grazing by animals are excluded.
Other exclusions: Any risks not specifically mentioned as covered in the policy document are generally excluded.

Eligibility criteria

Any farmer, landowner, sharecropper, or tenant actively engaged in cultivating crops can apply for coverage.
The applicant must have an insurable interest in the crop, meaning they must be directly involved in the cultivation and stand to lose financially if the crop fails.
Non-loanee farmers (those who have not taken agricultural loans) are eligible, provided they can submit valid land documentation (such as land records, lease agreements, or other proof of cultivation).
The policy may require the applicant to specify the type of crop, area under cultivation, and the location of the farm.
The farmer must pay the full premium as these policies are not subsidized by the government.
Required documents typically include
- - Proof of identity (Aadhaar, PAN, voter ID)
  - Proof of land ownership or tenancy (land records, lease agreement, etc.)
  - Details of the crop and area sown
  - Bank account details for claim settlement

Features

Comprehensive Crop Coverage: Protection against crop losses due to natural calamities such as drought, flood, hailstorm, cyclone, pests, and diseases.

Wide Crop Coverage: Includes food crops, oilseeds, and selected commercial/horticultural crops as notified by state governments.
Subsidized and Affordable Premiums: Small and marginal farmers receive premium subsidies shared by the central and state governments.

Coverage Across Crop Life Cycle: Insurance covers different stages including:
- Sowing/planting risk (losses due to prevented sowing),
- Standing crop losses (from sowing to harvesting),
- Post-harvest losses (due to specified perils like unseasonal rains or cyclones during drying period),
- Localized risks such as hailstorms, landslides, and inundation affecting isolated farms

Wide Crop Coverage: Includes food crops, oilseeds, and selected commercial/horticultural crops as notified by state governments.

Subsidized and Affordable Premiums: Small and marginal farmers receive premium subsidies shared by the central and state governments, making insurance affordable. Premium rates vary by crop and season (e.g., 2% for Kharif crops, 1.5% for Rabi crops, and actuarial rates for commercial crops).
Area Approach: Indemnity is generally based on the average yield of a defined area (insurance unit), not individual farm losses, except for localized calamities.
Quick and Transparent Claim Settlement: Losses must be reported promptly (usually within 48 hours), and claims are assessed by joint teams of government officials and insurers. Settlements are made directly to the farmer’s bank account.
Encourages Modern Farming: By mitigating risks, the policy encourages farmers to adopt improved agricultural practices and invest confidently.
Nationwide Availability: Implemented across most states and crop seasons, making it a broad safety net for farmers throughout India.
Use of Technology: Increasing use of remote sensing, GPS, and mobile apps for faster loss assessment and claim processing, especially under PMFBY.

Pros and cons

Pros

Financial Protection: Provides farmers with compensation for crop losses due to natural calamities, pests, diseases, and other insured risks, helping stabilize farm income.
Risk Mitigation: Reduces the financial uncertainty and risk inherent in agriculture, especially in regions with unpredictable weather.
Access to Credit: Insured farmers are more likely to receive loans from financial institutions, as the risk of default due to crop failure is reduced.
Encourages Investment: With risk covered, farmers are more confident to invest in better seeds, technology, and inputs, potentially increasing productivity.
Promotes Specialization: Reduces the need for excessive crop diversification as a risk management strategy, allowing farmers to specialize in crops best suited to their region, improving efficiency and productivity.
Boosts Rural Economy: Financially secure farmers can invest more in their farms, contributing to rural economic growth.
Empowerment: Instills confidence in farmers, enabling them to focus on productivity rather than worry about losses.

Cons

Premium Costs: Even with subsidies, the cost of premiums can be a burden for small and marginal farmers, especially in private or non-subsidized policies.
Claim Settlement Delays: Inefficiencies and delays in claim assessment and settlement can undermine farmer trust and the effectiveness of the policy.
Awareness and Accessibility: Many farmers lack awareness about insurance products, eligibility, and claim processes, leading to low participation.
Moral Hazard and Adverse Selection: Subsidized or compulsory insurance can sometimes encourage riskier behavior or fraudulent claims, affecting scheme sustainability.
Limited Coverage: Not all crops, risks, or post-harvest losses are covered, and exclusions may leave farmers exposed to certain types of losses.
Administrative Costs: High administrative and operational costs can reduce the efficiency and viability of insurance schemes.
Dependence on Government Support: Many schemes rely heavily on government subsidies, which may not be sustainable in the long term.

Terms and conditions

1.CoverageCrops Covered: Only notified crops in notified areas are eligible.

Risks Covered: Natural calamities (drought, flood, hailstorm, cyclone), pests, diseases, and certain localized risks (hailstorm, landslide, inundation).

Stages Covered: Sowing/planting, standing crops, and post-harvest losses (for a specified period and perils).

Exclusions: Losses due to war, nuclear risks, theft, negligence, or preventable human actions are not covered.

2. Eligibility

Who Can Insure: All farmers (including sharecroppers and tenant farmers) growing notified crops in notified areas.

Documentation: Proof of land ownership/tenancy (e.g., land passbook, 7/12 extract, land revenue receipt); sharecroppers/tenants must show crop sharing/tenancy arrangement.

Loanee Farmers: Coverage is compulsory for farmers who have taken crop loans for notified crops; premium is deducted from the loan amount.

Non-Loanee Farmers: Voluntary participation; must submit a proposal form and required documents.

Sum Insured and Premium

Sum Insured: For loanee farmers, minimum is the amount of crop loan; can opt for higher sum insured up to 150% of average yield by paying extra premium.
Premium Rates: Vary by crop and season; food crops and oilseeds (1.5%–3.5%), commercial/horticultural crops (actuarial rates).
Subsidy: Small and marginal farmers get premium subsidy, shared by central and state governments.

Claims and Indemnity

Claim Trigger: If the actual yield in the defined area falls below the threshold (guaranteed) yield, indemnity is paid to all insured farmers in that area.
Indemnity Formula:

Where shortfall = Threshold Yield – Actual Yield for the defined area.

Localized Risks: For certain perils (hailstorm, landslide, etc.), claims may be settled on an individual basis.
Claim Process: Losses must be reported within a specified period (usually 48 hours); assessment is done by joint teams; settlement is direct to the farmer’s bank account.

Important Conditions

Coverage Period: Only losses during the crop period (sowing to harvest) are covered; losses after harvest (except for specified post-harvest perils) are not covered.
Loans for Unsown Areas: Loans given for unsown areas are not covered; indemnity arises only after sowing and in the event of crop failure.
Cut-off Dates: Premium payment and proposal submission must be within specified cut-off dates for each season.
Area Approach: Indemnity is usually based on average yield in a defined area, not individual farm losses, except for localized calamities.

Renewal and Continuity

Annual Policy: Coverage is typically for one crop season; farmers must renew or reapply each season.

Note: Specific terms and conditions may vary by insurer and scheme. Always refer to the official policy document or guidelines for the most accurate and detailed information.

Scenarios where agricultural insurance policy claim
might get rejected

Technical or Documentation Errors: Claims are frequently denied due to mistakes in bank account details, mismatched or incorrect Aadhaar numbers, or errors in the name or land records submitted during registration.

Late Intimation: If the farmer fails to inform the insurance company of the crop loss within the required timeframe (often 48–72 hours after the event), the claim can be rejected.

Non-Notified Crops or Areas: Claims for crops or areas not officially notified under the insurance scheme are not eligible for compensation.
Non-Occurrence of Insured Peril: If the loss did not result from a risk covered by the policy (e.g., the peril was not drought, flood, etc., or was not included in the policy), the claim will be denied.
Non-Insured Farmers or Land: If the claimant is not an enrolled/insured farmer, or the claim is for government/municipal land or land exceeding actual holdings, it will be rejected.
Fraudulent Claims: Submission of false information, such as fraudulent geo-tagging of non-agricultural land as agricultural land, can lead to rejection and legal action.
Inadequate Documentation or Assessment: Missing, incomplete, or improperly filled claim forms, or lack of proper damage assessment, can result in denial.
Below Threshold Damage: If the crop loss does not meet the minimum percentage required for compensation (e.g., less than 31% damage), the claim may not be accepted.
Premium Not Paid: If the insurance premium was not paid or was forfeited due to misrepresentation, the claim is invalid.
Other Irregularities: Claims may also be rejected due to discrepancies like insurance on ineligible land, crops not covered, or irregularities found during scrutiny.

How to avoid such scenarios

Read and Understand the Policy: Carefully review all policy documents, especially the exclusion clauses, notification requirements, and claim submission procedures before purchasing and after receiving the policy. If anything is unclear, seek written clarification from the insurer.

Maintain Accurate and Complete Documentation:

Keep copies of all policy documents, premium payment receipts, and correspondence with the insurer.
Ensure that all information provided during application (such as land records, crop details, and personal identification) is accurate and up to date.
Document all disclosures and communications, preferably in writing or by email.

Report Losses Promptly: Notify the insurer or relevant authorities about crop loss or damage within the specified timeframe (often within 48–72 hours). Delayed intimation is a common reason for claim rejection.
Follow Claim Procedures Meticulously:

Use the correct forms and fill them out completely.
Submit all required supporting documents, such as photographs of damage, land records, and bank details.
Cooperate fully with loss assessment teams and participate in joint inspections if required.

Stay Informed: Keep track of any updates or changes to the insurance scheme, coverage, or claim process by checking official sources or consulting with insurance representatives.
Check for Policy Accuracy: After receiving the policy, verify that all details (name, land survey number, crop details, etc.) are correct. Inform the insurer immediately if any inaccuracies are found.
Pay Premiums on Time: Ensure that the full premium is paid before the cut-off date to maintain coverage.
Avoid Fraud or Misrepresentation: Never provide false information or attempt to claim for ineligible land, crops, or losses. Fraudulent claims are grounds for outright rejection and possible legal action.
Keep Evidence of Damage: Take clear photographs, collect witness statements if possible, and keep a record of dates and details related to the loss event.
Regular Policy Review: Annually review your insurance coverage to ensure it matches your current needs and circumstances.

Government schemes

1. Pradhan Mantri Fasal Bima Yojana (PMFBY)

Features:

Comprehensive crop insurance for farmers against losses due to natural calamities (drought, flood, hailstorm, cyclone), pests, and diseases.
Covers all food and oilseed crops and annual commercial/horticultural crops notified by state governments.

Premium rates: Farmers pay a fixed, subsidized premium (1.5% for Rabi crops, 2% for Kharif crops, and 5% for commercial/horticultural crops); the balance is paid by the government.
Technology-driven: Uses remote sensing, drones, and digital platforms for faster and more transparent claim assessment and settlement.
Direct benefit transfer: Claims are settled directly to the farmer’s bank account.
Area approach: Indemnity is based on yield loss at the notified area level, not individual farms, except for localized calamities.
Post-harvest losses: Coverage includes post-harvest losses due to specified perils for a limited period.

Eligibility Criteria:

All farmers (including sharecroppers and tenant farmers) growing notified crops in notified areas are eligible.
Both loanee and non-loanee farmers can enroll; for loanee farmers (those who take crop loans), enrollment is often automatic.
Premium payment is mandatory for coverage.
No landholding size restriction.
Voluntary participation for all farmers since 2020.

Restructured Weather Based Crop Insurance Scheme (RWBCIS)