Abstract: Specialty agricultural product insurance is a crucial pathway for promoting the high-quality development of agricultural insurance in China. Its effectiveness largely depends on farmers’ income quality and their level of policy cognition. Based on survey data from 1,579 farm households in the middle and upper reaches of the Yellow River Basin, this study constructs an income quality assessment system from four dimensions: adequacy, knowledge, structure, and stability. The entropy method is used to calculate the income quality index. Theoretically, the study integrates loss aversion theory, quasi-public goods theory, and Maslow’s hierarchy of needs theory to build an analytical framework. It empirically examines the impact of income quality on farmers’ participation in specialty agricultural product insurance and explores the moderating effect of insurance policy cognition. The results show that, after controlling for relevant variables, income quality has a significant positive effect on farmers’ insurance participation, and this finding remains robust after addressing endogeneity using the instrumental variable method. Further analysis indicates that insurance policy cognition plays a significant negative moderating role in this relationship. Specifically, as farmers’ cognition of insurance policy increases, the positive impact of income quality on insurance participation weakens. This study reveals the joint mechanism through which income quality and policy cognition influence farmers’ insurance participation behavior. The findings provide empirical evidence and policy implications for improving a diversified agricultural insurance system and enhancing the precision and coverage of agricultural insurance policies.