What is the primary purpose of crop insurance?

The primary purpose of crop insurance is to transfer risk from farmers to insurance companies. This mechanism allows farmers to protect themselves financially against potential losses due to various adverse events such as natural disasters, pests, or market fluctuations. By purchasing crop insurance, farmers can receive compensation for lost revenue or damaged crops, which helps stabilize their income and mitigate the financial burden of unforeseen circumstances.

This risk transfer is vital in agriculture, where farmers are often vulnerable to unpredictable elements that can severely impact their livelihoods. Insurance companies, equipped with the resources and expertise to manage and assess risk across broad portfolios, can absorb these risks. This enables farmers to continue operating and investing in their businesses despite potential setbacks.

While increasing farmers' income might be a secondary benefit as a result of improved financial stability, it is not the primary goal of crop insurance. Similarly, crop insurance does not eliminate farming losses entirely, as it only provides coverage up to certain limits and under specific conditions. Lastly, while some crop insurance programs may involve government subsidies to help make them more affordable or accessible, the core function remains centered around risk transfer rather than direct financial aid.