It’s human nature and good economics. We all want to keep our money earning whatever interest we can get as long as possible before we use it to pay our bills. The crop insurance industry is one of the few segments of agribusiness that actually encourages this practice, with insurance premiums due near the end of a crop season rather than up front.
There is a downside, however. Delaying payment until the last minute does strengthen the possibility of forgetting to pay altogether. What are the consequences when the check is not postmarked timely and results in a late payment?
There are significant consequences, according to Jeanie Bonewitz, ProAg Crop Accounting Manager. “It is nice to be able to pay your premium later in the crop year, but it’s not a deadline you want to miss,” she states. “In fact, payments are due earlier now than they were a few years ago.”
That’s because the bill date for Midwestern spring crops was moved to August 15 from October 1 as a part of the 2008 Farm Bill, Bonewitz notes.
Bonewitz explains that the farmer’s portion of the premium is due on a specified date that varies by crop. That date for Midwest spring crops, for example, is August 15, and the farmer has until September 30 to make that payment. If the bill date is the first of the month, however, the grower has a 30-day grace period before interest is charged. An extension of credit is automatic if the payment is not received within 30 days of the due date. That credit is no bargain, however, as it comes at a cost – 1.25% per month which is 15% per annum. The extension of credit has a non-negotiable payment date.
If the full indebtedness is not paid by the crop’s termination date (March 15 for many Midwestern spring crops), the insurance company reports your ineligibility to the Risk Management Agency (RMA). This results in your name and Social Security Number or Federal Employee Identification number being listed on the Ineligible Tracking System (ITS). The ineligibility status will follow you through the federal crop insurance system. Changing insurance agents or companies will not enable you to avoid the consequences. In many situations, the Substantial Beneficial Interest (SBI) persons or entities also become ineligible.
As an example, a grower doesn’t pay the 2014 corn premium by the termination date of March 15, 2015, his ineligibility will be reported to RMA as of that date. Eligibility to participate in the federal crop insurance program cannot be reinstated until the total debt is satisfied. The result is that the grower would not be able to purchase crop insurance for at least one crop year. Non-payment and ITS could also result in not being able to participate in other USDA Programs.
Additional time may be allowed to pay the premium by the company if the grower applies for a payment plan and such plan is approved by the company. The payment plan must be signed and in place by the deadline. If you miss a payment once the agreement is set up, the ineligibility is reinstated and the status is retroactive.
Growers can appeal the ineligible decision as rendered to the National Appeals Division (NAD) of the USDA. An administrative judge hears the appeal and makes a decision on whether the adverse decision was made inappropriately by the RMA.
It is very important that payments made are postmarked on or before the termination date. This also applies to payments remitted for payment agreements. If payments are mailed on the termination date or even a few days before, it is a good practice to take the payment envelope to the post office to be postmarked and ask for a receipt to prove timely mailing. Keep the receipt in case there are any questions of timely payment.
The bottom line: Don’t push payment deadlines to the back burner for too long! Better to lose a little interest than to forfeit crop insurance coverage for an entire crop year.