LRP secures your investment against unexpected market price drops. After you’ve taken your livestock to market, it’s time to begin the settlement process.
LRP sets a price floor, which guarantees that you’ll receive a minimum ending value when you go to market. After you’ve taken your livestock to market, you may be entitled to indemnities.
An indemnity is payment that covers the difference between your coverage price and the end value that you sold your livestock for at market.
A cattle producer insures their livestock with LRP for $100,000 with a premium of $1,000, which they’ll have to pay when their coverage ends.
If they receive an end value of $95,000 at the market, they’ll receive an indemnity that covers the difference between their insured price and end value, minus their premium. They are due a net indemnity of $4,000.
If they receive an end value of $110,000, they will not receive an indemnity because their end value is higher than their insured price. They will simply pay their premium.
In today’s climate, many risks can cause market prices to drop unexpectedly. When you use LRP, you’re protecting your investment against sudden price drops.
Even if prices are down when you go to market, you are guaranteed to receive an indemnity if the end value is less than your insured cost.