What is the Supplemental Coverage Option (SCO) Endorsement?
The Supplemental Coverage Option (SCO) is a new crop insurance option that provides additional coverage for a portion of your underlying crop insurance policy deductible. You must buy it as an endorsement to the Yield Protection, Revenue Protection, or Revenue Protection with the Harvest Price Exclusion policies. The Federal Government pays 65 percent of the premium cost for SCO.
SCO is available, starting with the 2015 crop year, in select counties for spring barley, corn, soybeans, wheat, sorghum, cotton, and rice.
What is the area loss trigger?
The SCO Endorsement begins to pay when county revenue falls below 86% of its expected level (the percent is the same for all SCO policies – set by law). The SCO Endorsement begins to pay when county average revenue falls below 86 percent of its expected level. The full amount of the SCO coverage is paid out when the county average revenue falls to the coverage level of the underlying policy.
How does SCO really work?
It is easiest to explain how coverage is determined through an example. Suppose a grower’s corn crop has an expected value of $765.00 per acre (170 bushels at $4.50 per bushel). Assume the grower buys a Revenue Protection policy with a 75-percent coverage level (this is the ‘underlying policy’). The underlying policy covers 75 percent (or $573.75) of the expected crop value and leaves 25 percent (or $191.25) uncovered as a deductible.
At this point, the grower has the option to buy SCO coverage. Since the underlying policy is Revenue Protection, SCO will also provide revenue protection, except that payments will be determined at a county level.
- Step A: SCO Endorsement begins to pay when the county revenue falls below 86 percent of its expected level. = 86%
- Step B: SCO Endorsement pays out its full amount when county revenue falls to the coverage level percent of its expected level (always equal to the coverage level of the underlying policy) = 75%
- Step C: Percent of expected crop value covered by SCO (A – B, or 86% – 75%) = 11%
- Step D: Amount of SCO Protection (C X Expected Crop Value, or 11% X $765) = $84.15
The SCO Endorsement begins to pay when county average revenue falls below 86 percent of its expected level. The full amount of the SCO coverage is paid out when the county average revenue falls to the coverage level of the underlying policy – in this example, it is 75 percent (shown in Step B above).
SCO payments are determined only by county average revenue or yield, and are not affected by whether you receive a payment from your underlying policy. So it is possible for you to experience an individual loss but to not receive an SCO payment, or vice-versa.
The dollar amount of SCO coverage is based on the percent of crop value covered. In this example there are 11 percentage points of coverage (from 86 percent to 75 percent). Eleven percent of the expected crop value is $84.15 (or 11 percent X $765.00). The SCO policy can cover up to $84.15 of the $191.25 deductible amount not covered by your underlying policy.
Do I need to sign an SCO application every year, as long as I stay with the same crop insurance company?
No, the endorsement is continuous. You must make the endorsement choice by the sales closing date for your underlying policy, and with the same insurance company.
If I change coverage levels on my underlying policy do I still have SCO coverage?
Yes. SCO follows the coverage of your underlying policy. If you choose Yield Protection, then SCO covers yield loss. If you choose Revenue Protection, then SCO covers revenue loss.
If I transfer my policy to a different agent or AIP do I need to need to complete a new application?
I don’t know if I want to enroll my winter wheat in the FSA ARC program. Should I sign an SCO application?
Yes, but the best advice is to talk with your local ProAg crop insurance agent to determine what best meets your individual risk management needs. Crops for which ARC is elected on a farm are not eligible for SCO coverage.
SCO will first be available for the 2015 crop year’s winter wheat, where you must make your crop insurance coverage decisions for fall-planted crops (including SCO) by the sales closing date (generally September 30). If you have applied for SCO for your winter wheat for 2015 you may choose to withdraw coverage on any farm where you intend to choose ARC for winter wheat by the earlier of your acreage reporting date or December 15 without penalty or being charged a premium. This allows you additional time to make an informed decision related to whether to choose to participate in either the ARC or Price Loss Coverage (PLC) programs for your winter wheat, which will happen later this winter.
To withdraw coverage, you must notify your agent of your intended election for ARC by the earlier of your winter wheat acreage reporting date or December 15. This is a one-time exemption that is only allowed for the 2015 crop year’s winter wheat to coordinate with ARC program sign-up rules.
After this one-time exemption for 2015 crop year fall-planted winter wheat, if you choose SCO on and ARC on the same crop on a farm, your SCO coverage for that crop on that farm will be cancelled and you will forfeit 20 percent of your SCO premium on that crop and farm to cover administrative expenses. However, your underlying policy will still be in effect.
What happens if I elect the SCO endorsement and the Farm Service Agency ARC program and then forget to revise the SCO endorsement?
20% of the SCO premium is due if withdrawal of the SCO coverage because of your intended election for ARC is not done by the earlier of your winter wheat acreage reporting date or December 15th.
Coverage is summarized. Refer to the actual policy endorsement for applicable terms, conditions, limits and exclusions.
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