How Marine Insurance works?

Posted by Gaurav Kadam on May 27th, 2021

When such a vast fortune is involved, insurance of the cargo becomes necessary. Therefore, traders purchase a marine insurance policy to minimize losses or damages to their product, if there are any.

Since a significant part of the global trade is ferried using the sea routes, a marine insurance policy has become an integral part of the import-export business. Keep reading to know how marine insurance works.

Nature of marine insurance policy

Although it reads 'marine' insurance, it is not limited to sea ferries. A marine insurance policy provides coverage to both international and inland trades. Essentially, a trader can purchase a marine insurance policy for all shipments sent via roads, railroads, or sea routes.

A comprehensive marine insurance policy provides coverage for the loss or damage to cargo, the ship and covers third-party liabilities such as crew members' lives. A marine insurance policy is a type of business insurance where the original stakeholders (importer and exporter) hands over the liability of goods to the insurance provider.

How does a marine insurance policy work?

In some global trade scenarios, having a marine insurance policy becomes obligatory for the exporter. In simple words, the importer makes it a mandate for the exporter to purchase a marine insurance policy to protect the interest of both parties. It comes as a clause in the export contract.

A trader can buy marine insurance online before sending the shipment. After purchasing the insurance, the policyholder should read the contractual policies and instructions to know the dos and don’ts of the policy. Knowing what the insurance policy covers and what it does not cover are vital. Should the insured property be harmed or damaged while in transit, the insurer will pay the insured sum to the policyholder. However, the pay-out is done after a proper investigation.

The traders should also know which type of marine insurance to buy. There are many types of marine insurance with different focus or purpose –

• Freight insurance provides coverage against the loss in case of the shipment losing a container to an accident
• Hull insurance provides coverage for the vessel’s hull or torso – its machinery, furniture, and other articles
• Liability insurance takes care of the third-party liabilities such as damaged caused to others’ property or the crew members
• Protection and Indemnity insurance or P&I insurance acts similarly to the liability insurance

To conclude

Having a marine insurance policy can save the exporter/ importer from a lot of financial trouble in case of an accident. However, one should keep in mind that every marine insurance policy comes with clauses. A trader should attentively read the terms and conditions before purchasing the policy. Violating any of the conditions may jeopardise the policyholder’s claim to the sum insured.