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 Frequently Asked Questions
- Can I buy LRP insurance if I don’t live in one of the eligible states?
Yes. You do not have to live in one of the eligible states to buy LRP insurance. The livestock that you insure must be physically located within that state. Your state of residence does not determine eligibility.
- What if I live in an eligible state but have livestock in an ineligible state?
Those livestock that are located in the ineligible state cannot be insured with LRP. They must be located within one of the eligible states.
- How can I find an insurance agent who sells LRP?
The USDA-RMA website has an online agent locator tool that allows you to find crop insurance agents in your area who are certified to sell LRP. It is important to note that the agent must be licensed to sell insurance in the state where the livestock are located. For example, if you are a rancher in north-central Nebraska and have cattle in both Nebraska and South Dakota, you may want an agent that can sell LRP insurance in both states.
- How do I prove that the insured livestock are mine?
Your insurance company, USDA, or any person they designate may request to inspect the insured livestock or paperwork proving you own the livestock. Acceptable proof of ownership can include purchase receipts from prior owners, financing documents from a lender that financed the livestock purchase, or a bill of sale when the insured livestock are sold. Also, third party statements may be used to verify ownership. For example, if a veterinarian or feed supplier is familiar with your operation, has visually inspected the insured livestock, and can attest to your ownership, that veterinarian or feed supplier can provide a written statement stating the time and number of livestock owned by you. Check with your insurance agent for more details.
- When can I buy LRP?
LRP is available for purchase starting when RMA posts the daily prices and premium rates at approximately 5:00 pm CST. Coverage can be purchased at any time after that (provided your agent is available) until 9:00 am of the following business day including Saturday morning. Coverage is not available Monday mornings, Sundays, or any date which would cause the effective date (when prices are set) to be a Federal or market holiday.
- Is there a minimum (or maximum) number of head that I can cover on one specific coverage endorsement? …in one crop year?
There is no minimum number of livestock that must be included on an SCE. You can cover one head at a time if you want. Also, there is no requirement that you purchase LRP at all in a given crop year even if you have a policy in place. There are maximums that can be covered on one SCE. You can insure 10,000 hogs, 2,000 fed cattle, or 1,000 feeder cattle on a single SCE. In a given crop year (July 1 to June 30), you can insure up to 32,000 hogs, 4,000 fed cattle, and 2,000 feeder cattle.
- Can LRP premiums or coverage prices change after they are established for a given day?
No, once the prices and premium rates are set for a given business day, they are guaranteed until 9:00 am the following morning and will not change. This allows producers to be certain of the price they will pay for coverage unlike the futures or options markets where prices can change quickly or you may have to move the market to fill an order.
- How much does LRP insurance cost?
The cost of LRP depends on the level of coverage purchased and can range from as low as a few cents to several dollars per cwt. For current LRP premium rates, click here.
- Is it more or less expensive than a put option?
The cost for LRP on a per cwt basis is normally about equal to the cost of a put option. Depending on market conditions on a given day, one alternative may be slightly favorable (in terms of cost) to the other. For a discussion of put option and LRP premiums, click here.
- What happens if insured livestock die?
If you report the dead livestock within 72 hours, they will still be eligible for an indemnity. If they are not reported, any indemnity paid will not include the dead livestock and no premiums will be refunded.
- So should I figure my average death loss in when I buy coverage?
Figuring death loss into purchasing LRP insurance may not be a good idea. If you do this, you need to keep track of all the animals that die and remember at what point you must begin reporting deaths. If you insure all the livestock and report all the deaths, it establishes the habit of reporting everything and there is no way to forget which animals need to be reported and which do not.
- If LRP is indemnified against a cash index, does that mean it guarantees a cash price?
LRP does NOT guarantee a cash selling price. Users of the program are still exposed to basis risk, in this case LRP basis. The program gives a policy holder the right to an indemnity based on a national average cash price. However geographic differences or variations in quality of livestock may mean that a producer’s local cash selling price is different than the national average. Therefore, the price that producer receives is not necessarily represented by the national average.
- Is LRP basis the same as futures basis?
No, LRP basis is not the same as futures basis. LRP basis is the difference between a local cash selling price and the national average cash price against which LRP is indemnified. Generally, LRP basis risk is less variable than futures basis risk, particularly for fed cattle and swine.
- Can I sell my insured livestock before the end date of the coverage endorsement?
Livestock can be sold up to 30 days prior to the end date of the SCE under which they are covered without voiding the insurance. This exposes producers to price risk in that they may receive a low cash price before the end date, but if prices increase before the end date, they may not receive an indemnity. This marketing window allows for some flexibility for individual producers marketing and production needs.
- If I sell insured livestock before the 30-day window, can the new owner still collect an indemnity if one is due?
If livestock are sold more than 30 days prior to the end date of the insurance, coverage can be transferred to the new owner by filing a Transfer of Right to Indemnity form. This form is filed with the seller’s insurance agent. The seller may be able to get some added value for the livestock if the insurance appears likely to pay an indemnity; however, this is dependent on market conditions and may be difficult to quantify.
- Can I let someone else (like my bank) collect my indemnity?
Yes, you can assign your right to collect an indemnity on the insurance to another entity. This is similar to transferring the right to an indemnity, but in this case, ownership of the livestock does not change. You must file an Assignment of Indemnity form with your insurance agent. Once the form is approved, the assignee has the responsibility of filing the claim form if an indemnity is due.
- What do I do if I am owed an indemnity payment?
If you are owed an indemnity, your insurance company will send a letter of probable loss stating that you are likely owed an indemnity on your insurance coverage. You then have 60 days from the end date of coverage to file a claim form with your insurance company to claim your indemnity. Your insurance company then has 60 days to pay the indemnity.
- How is Actual Ending Value determined?
Actual Ending Value (AEV) is determined by a national average cash price. Each commodity uses a specific report that is generally representative of cash markets across the country for that commodity. For fed cattle, AEV is determined by the 5-Area Weekly Weighted Average Direct Slaughter Steer Price for steers grading 35% to 65% choice sold FOB feedyard on a live weight basis. For swine, AEV is a two-day volume weighted average of the “Negotiated” and “Swine Or Pork Market Formula” national net prices. This is the same price as the CME lean hog cash index. The feeder cattle AEV is the CME feeder cattle cash index price.
- What are price adjustment factors?
Price adjustment factors are used with feeder cattle LRP. A wide range of different weights and types of cattle are eligible for LRP coverage including both steers and heifers. Additionally, there is substantial variation in the value or price per cwt of the cattle. However, feeder cattle LRP only uses one cash index price (which include 700-849 lb. Medium and Medium/Large Frame, # 1 steers). Therefore the price of some feeder cattle insured with LRP can vary from the index because the cattle are not as closely represented in the index price. The price adjustment factors are used to scale the index up or down (along with coverage prices and premium rates) to more accurately reflect the value of weights and types of cattle not represented by the cash index price.
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