South Dakota Crop Insurance Practice Exam

What is required for a person to purchase crop-hail insurance?

1. An insurable interest in the crop

2. Ownership of the land

3. A signed agreement with a crop advisor

4. Prior experience in farming

The correct answer is: An insurable interest in the crop

To purchase crop-hail insurance, a person must demonstrate an insurable interest in the crop. This means that the individual has a financial stake in the crop's potential yield and harvest, as they would incur a loss if the crop were damaged by hail or other perils. Insurable interest ensures that the insurance coverage is warranted and serves its purpose; it prevents moral hazard situations where individuals may take excessive risks if they have no financial responsibility for the loss. The other options do not fully capture the requirement necessary to obtain this type of insurance. While ownership of the land can imply insurable interest, it is not a strict necessity, as individuals may lease land or have other arrangements that still confer an interest in the crop. A signed agreement with a crop advisor or prior experience in farming may be beneficial, but neither is a requirement for purchasing crop-hail insurance. The key factor remains the need for an insurable interest in the crop being insured.