Diversification Option Example

 

 

You insure 1,000 acres of wheat and canola.

1,000 (total insured acres) x 30% (eligible for diversification coverage) = 300 eligible diversification acres

With your eligible 300 acres, you decide to grow 200 acres of buckwheat and 100 acres of dill.

Premium Calculation:

The total premium for 1,000 insured acres is $5,000

Average premium = $5,000 ÷ 1,000 acres
                          = $5/acre

You pay the average premium for your diversified acres.

300 diversified acres x $5/acre = $1,500 diversification premium

Total Premium = $5,000 + $1,500
                      = $6,500 total premium

Establishment Benefit Calculation:

Of your 300 diversified acres, 100 do not establish. If the adjuster determines that the acres did not establish, the indemnity is calculated as:

100 acres x $25/acre = $2,500

Indemnity Calculation
(in the event of the establishment claim above):


At the end of the year, you have a $30,000 claim on canola but no claim on your wheat.

Average indemnity = $30,000 ÷ 1,000 insured acres = $30/acre

You received a Diversification Establishment Benefit on 100 acres and did not reseed. Therefore, the indemnity will be paid on the remaining 200 diversified acres that were taken to harvest.

200 remaining diversified acres x $30/acre = $6,000 indemnity

Indemnity Calculation
(in the event of no establishment claim):


You receive a $30,000 claim on canola but no indemnity on your wheat; therefore, the average indemnity is:

$30,000 indemnity ÷ 1,000 acres = $30/acre

300 diversified acres x $30/acre = $9,000 indemnity