What Happens When Your LGM Coverage Period Ends?
In today’s climate, it’s important to insure your operation against unexpected market price changes. After you’ve taken your herd to market, it’s time to begin the LGM settlement process.
What is an Indemnity?
LGM creates a gross margin guarantee, which means that you’re guaranteed to receive a minimum profit when you bring your livestock to market. Depending on the actual gross margin that you receive at market, you may be entitled to an indemnity.
An indemnity is a payment that covers the difference between your guaranteed gross margin and the actual gross value that you sold your livestock for at market.
Let’s Look At a Quick Example
A producer buys an LGM coverage plan with an expected gross margin of $600 per head with a $10 deductible.
When he goes to market, he receives an actual gross margin of $400 per head. Because his actual gross margin is less than his guaranteed gross margin, he’ll receive an indemnity that covers the difference.
If the same producer receives an actual gross margin of $700 per head at market, he will not receive an indemnity. This is because his actual gross margin was higher than his covered price.
Create a Safety Net
There’s no telling what tomorrow’s market may bring. With LGM, you can create a safety net for your investment. Rest easier knowing that your operation is secure against potential losses.
If prices are down, rest assured that you’ll still receive an indemnity. But, when the market is up, you’ll still benefit.
