The paper discusses a methodology for design and pricing of index insurance contracts for crop production. The methodology heavily relies on establishing a relationship between the index and yields in order to evaluate the contract performance in hedging farmers' risk. However, analysis of yield/rainfall data series for Iowa corn and Kansas wheat fail to produce a reliable and meaningful relationship which can be used uniformly across several counties and/or crop producing districts. Further research is needed as to applicability of rainfall insurance to specific crop/region combinations.