Risk Management

What Should I Do if I Have to Pay My Premium?

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What Should I Do if I Have to Pay My Premium?

Although USDA-subsidized, every PRF insurance policy has a premium for which the rancher would be responsible if their indemnity does not cover the balance in full. While this situation is unlikely with a Redd Summit policy (last year more than 94% of our policies did not require a premium payment), it’s still a good idea to have a plan in place if you do owe a portion of your premium. This paper breaks down what a premium is, how it is paid for, and what to do if you need to pay one.

What is a Premium?

An insurance premium is a cost associated with coverage that the insured is responsible for paying, regardless of whether or not that coverage is utilized. Think of this as the price you pay for your car or home insurance regardless of whether you need to use it. However, PRF insurance premiums are different because they are not due upfront!  Instead, your premium is typically paid off via indemnities which are triggered by lower-than-average rainfall. Once these indemnities cover your premium balance in full, any additional indemnity goes straight to you, meaning you can receive coverage from rainfall volatility with no up-front or out-of-pocket cost.

However, if you receive average or above-average precipitation during your coverage intervals, your policy may not trigger enough indemnity to satisfy your premium in full, making you responsible for the remaining balance.

Another important thing to note about the PRF insurance premiums is that they are USDA subsidized. This means that the United States Federal Government is helping to pay a portion of your PRF premium; you are never on the hook for the entire amount. They do this as a commitment to the productivity of the US food chain and producers like you who make it possible.

What to Do if You Owe Your Premium

Your Redd Summit agent builds your policy in a way that makes you much more likely to receive indemnities, rather than owe your premium on the September 30th due date. However, no one can make sure-fire guarantees with a policy dependent on the weather. In the event of an unusually wet year that doesn’t trigger enough indemnities to satisfy your premium in full, it’s good to have an idea of how you will be able to cover the remaining balance. Your options include:

One-time payment

Your first option for paying off the remaining portion of your PRF insurance premium is to pay it all at once by making a one-time payment to your Authorized Insurance Provider (AIP).

Utilize an Operating Line of Credit

Another option for paying the remainder of your premium is drawing on an operating line of credit through your preferred lending institution.

Financing Through your Authorized Insurance Provider (AIP)

Finally, you could sign on for a finance plan through your AIP that would actually defer your premium due date until February. Most ranchers choose this option if they still have coverage remaining for the rest of the year following the premium’s usual September 30th due date, and have high confidence that this coverage could trigger enough indemnities to cover the balance in full. Though these financing plans usually have higher interest rates than a loan through your operating line of credit. Consult with your agent to find out if this is a good option for you.

Consider PRF insurance as a Long-term Risk Management Strategy

PRF insurance is a long-term risk management strategy to protect your operation’s profits from precipitation volatility. Your Redd Summit agent creates your policy by analyzing your land’s 20-year history. In doing so, they’re able to maximize your potential for receiving an indemnity and minimize your potential for owing a portion of your premium balance. Even still, there will likely be some years that you will owe some of your premium, but the lifetime net of your policy will still be overwhelmingly positive. For more specific numbers, ask your agent to send you your land’s 20-year average net indemnity!

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Jess McCartney
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