South Dakota Crop Insurance Practice Exam

On an APH plan, the production guarantee is calculated by which of the following formulas?

1. APH approved yield + coverage level

2. APH approved yield x coverage level

3. APH approved yield - coverage level

4. APH approved yield ÷ coverage level

The correct answer is: APH approved yield x coverage level

The formula for calculating the production guarantee on an Actual Production History (APH) plan is derived from multiplying the APH approved yield by the coverage level. This approach reflects the insurance structure where the production guarantee is designed to provide a certain level of income protection for the farmer based on their historical yield data and chosen insurance coverage. The APH approved yield represents the average yield that a farmer can reasonably expect to achieve based on their past production records. The coverage level, expressed as a percentage, indicates how much of that yield is insured. Therefore, by multiplying the approved yield by the coverage level, you obtain the amount of production that is guaranteed under the insurance policy. This ensures that farmers can gain a clearer understanding of their safety net in terms of expected yield losses. This methodology illustrates the intent of crop insurance to provide tailored risk management tools for producers, by aligning coverage directly with historical performance while still allowing for flexibility in how much financial protection the farmer opts for based on their individual risk tolerance.