24 BULLETIN 1043, U. S. DEPAETMEISTT OF AGRICULTLTRE. 



lated. in the contract. But suppose, on the other hand, that wheat 

 falls to $0.80. The 8 bushels harvested will then be worth only 

 $6.40 and the indemnity due will be $5.60 an acre. On the basis of 

 this price, even a 12-bushel yield will call for an indemnity, assum- 

 ing that damage has occurred from hazards covered by the contract, 

 equal to the difference between $12 and $9.60, or $2.40 an acre. To 

 the farmer suffering crop damage from causes covered by the con- 

 tract in such degree that his actual yield at market price falls below 

 the insurance an acre, it makes no difference under this plan whether 

 the iDrice is higher or lower. To the company, on the other hand, 

 high prices mean few and small losses, while low prices mean numer- 

 ous and relatively large losses. 



Turning now to the third and last form of contract previously 

 outlined, conditions based on fluctuations in price take on still an- 

 other aspect. Under this plan the company in effect reserves to 

 itself the right to make settlement in kind on the basis of the, aver- 

 age yield used in determining the insurance an acre, at the same time 

 retaining the option of settling the claim on a basis of dollars an 

 acre with the crop valued at market price. 



Assume again that a farmer carries insurance of $12 an acre on 

 his wheat, this figure in this instance having been determined by 

 taking three-fourths of a 16-bushel average yield and an average 

 price of $1 a bushel. Owing to one or more of the hazards insured 

 against, the yield, as in the preceding illustration, is only 8 bushels 

 an acre. Assume first that wheat following harvest is worth $1.50 a 

 bushel. The company, of course, invokes the clause in its contract 

 providing that its liability shall in no case exceed the amount, if any, 

 by which the amount insured exceeds the market value of the crop 

 harvested. Since the value of the 8 bushels harvested is $12, no 

 indemnity is due. But suppose, on the other hand, that the price 

 following harvest is only $0.80 a bushel. The company then relies 

 on the provision that in no event shall its liability under the con- 

 tract exceed the cost at the time of harvest to replace all or any 

 part of the estimated yield with products of like kind and sound 

 quality. The company, therefore, tenders the insured the equiva- 

 lent of 4 bushels at $0.80, or $3.20. This sum, together with the 8 

 bushels harvested, also at $0.80, makes the gross returns to the 

 insured $9.60 an acre. 



Had wheat remained at $1 a bushel the indemnity would, of 

 course, have been $4 an acre, but with a market price at harvest time 

 standing at $1.50 the company pays nothing, and with a market 

 price of $0.80 it pays only $3.20. As in the case of the preceding 

 plan of contract here considered, the company has fewer losses by 

 reason of the rise while such losses as occur are reduced in amount. 



