What is Marine Insurance Policy? Types, Benefits, and More

Export-Import Cargo Insurance, commonly known as marine insurance, plays a crucial role in international trade. It provides coverage for goods transported via sea, air, road, or rail. This type of insurance protects exporters and importers from financial loss due to damage or loss of goods during transit. 

In this guide, we will explore the key aspects of marine insurance, including the different types of policies, their benefits, and the principles that govern them.

What is Marine Insurance?

Marine insurance is designed to cover goods being transported from one location to another, whether domestically or internationally. This insurance is essential because goods in transit are exposed to various risks, such as natural disasters, accidents, and theft. Marine insurance offers financial protection against these risks, ensuring that businesses do not suffer significant losses if their goods are damaged or lost during transportation.

Marine Insurance Act of 1963 

The Marine Insurance Act in India was established in 1963. According to Section 3 of this act, whenever the term “marine insurance” is mentioned, it refers to the insurance that covers goods against loss or damage during sea transport. This means that if something happens to the goods while they are being transported by sea, the insurance company is responsible for covering the costs. The insurer takes on the risk and ensures that the goods are protected in case of any unfortunate events during the sea journey.

How Marine Insurance Works? 

Marine insurance helps protect goods during their journey by transferring the risk from the people involved (like exporters and shipping companies) to the insurance company. Here’s how it works:

When goods are exported, they pass through many hands—like shipping companies or airlines. These companies have limited responsibility for what happens to the goods. If something goes wrong, the exporter could lose a lot of money. To avoid this, exporters buy marine insurance. This insurance covers any possible loss or damage to the goods during transit.

While the shipping company or airline might pay for damages, they usually only cover a small amount based on the number of packages or the consignment. This may not be enough to cover the full value of the goods. That’s why exporters often insure their goods with an insurance company.

Marine insurance is also needed to meet the terms of certain contracts. For example, agreements like Cost Insurance and Freight (CIF) or Carriage and Insurance Paid (CIP) require the exporter to insure the goods to protect the buyer or the buyer’s bank. Even when it’s not required, like in Delivered Duty Unpaid (DDU) or Delivered Duty Paid (DDP) agreements, sellers often still insure the goods just to be safe.

To make sure marine insurance works well and to avoid claims, exporters should:

• Pack goods carefully to protect them during loading and unloading.
• Use packaging that can withstand natural risks as much as possible.
• Consider the chance of rough handling or theft when packing the goods.

This way, marine insurance helps make the export process safer and less risky for everyone involved.

Types of Marine Insurance Policies

Here are the 9 main types of Marine Insurance Policies: 

Floating Policy: This policy is great for large exporters. Instead of getting insurance for each shipment, they can get one policy that covers all shipments made during a set period, usually a year. They just need to report their shipments regularly.

Voyage Policy: This policy is for a single shipment. Each time an exporter sends goods overseas, they buy a new policy. It takes extra time and effort compared to an open policy.

Time Policy: This policy covers goods for a specific period, usually one year. It can be extended to cover a specific voyage, but it’s typically for a fixed time.

Mixed Policy: This is a combination of a Voyage Policy and a Time Policy. It provides coverage based on both time and specific voyages.

Named Policy: In this policy, the name of the ship is mentioned in the insurance document. It’s popular because it specifically covers a named ship.

Port Risk Policy: This policy protects a ship when it’s stationed in a port, ensuring its safety while not at sea.

Fleet Policy: This policy covers several ships owned by the same company or person. It’s useful for covering even older ships under one policy, usually on a time basis.

Single Vessel Policy: This policy is for one specific ship. It covers only that single vessel under marine insurance.

Blanket Policy: With this policy, the owner pays for maximum protection upfront. It covers a broad range of risks and offers extensive coverage.

What Marine Insurance Covers?

Marine insurance helps protect your goods while they’re being shipped. Different types of insurance coverage handle various risks, ensuring your goods are safe from many potential problems. Here’s a simple breakdown:

Basic Coverage: This type of insurance covers fundamental risks. It protects against issues like fire, explosions, accidents (such as sinking or collisions), and the need to unload cargo in an emergency.

Extended Coverage: This offers more protection than basic coverage. It includes everything in the basic plan plus extra risks like damage from earthquakes, volcanic eruptions, rainwater, seawater, and river water. It also covers damage or loss during loading and unloading, and if packages fall overboard.

Comprehensive Coverage: This provides the most extensive protection. It covers all the risks in the extended plan and adds protection against things like breakage, theft, water damage, and more.

However, some risks like wars, strikes, and civil unrest are not included in the standard insurance plans. If needed, you can usually get extra coverage for these risks by paying an additional fee.

In summary, marine insurance helps you protect your goods in different ways depending on how much coverage you choose. The more comprehensive the plan, the more risks it covers.

Principles of Marine Insurance

Marine insurance operates on three fundamental principles:

Insurable Interest: This principle states that the policyholder must have a financial interest in the insured goods. In other words, the loss or damage to the goods must result in a financial loss for the policyholder. Insurable interest typically transfers from the exporter to the importer when the risk shifts, as determined by the trade terms (e.g., CIF, CIP).

Utmost Good Faith: Both the insurer and the insured must act in good faith, providing all relevant information accurately. This principle ensures transparency and trust between the parties involved. For example, under an open policy, exporters must declare all shipments honestly to avoid any breach of good faith.

Indemnity: Marine insurance is a contract of indemnity, meaning that the insurer compensates the policyholder for the value of the goods lost or damaged, as agreed in the policy. The goal is to restore the policyholder to the financial position they were in before the loss occurred.

Insurance Policy vs. Insurance Certificate

When insuring cargo, two key documents come into play: the insurance policy and the insurance certificate.

Insurance Policy:

The insurance policy is a formal document issued by the insurer, detailing the terms and conditions of the coverage. It is typically issued once and covers either a single shipment (specific policy) or multiple shipments over time (open policy).

Insurance Certificate:

An insurance certificate is issued under an open policy and serves as proof of insurance for each individual shipment. It includes details such as the policy number, shipment information, and the extent of coverage. The exporter issues the certificate to the buyer for each shipment, ensuring that the goods are covered throughout their journey.

Advantages of an Open Policy Over a Specific Policy

Opting for an open policy offers several advantages, particularly for large exporters:

Time-Saving and Convenience: With an open policy, exporters do not need to apply for insurance every time they ship goods. Instead, they can issue insurance certificates on the spot, significantly reducing the time needed to arrange coverage.

Automatic Coverage: Under an open policy, shipments are automatically insured as soon as they are declared, providing seamless coverage and peace of mind. This is particularly beneficial for businesses that ship goods frequently and need consistent insurance protection.

Difference Between Fire Insurance & Marine Insurance

Understand the difference between fire insurance and Marine Insurance: 

Fire Insurance:

• Fire insurance protects against the risk of fire. It covers physical things like buildings or property.
• The person insured has a moral responsibility to take care of the property.
• There’s no profit expected from fire insurance; it just covers the loss.
• You need to have an insurable interest (a stake in the property) both when you buy the policy and if a loss happens.

Marine Insurance:

• Marine insurance protects against risks at sea. It covers things like ships, cargo, and freight.
• There’s no moral responsibility clause for the ship or cargo owner.
• Marine insurance often expects a 10-15% profit margin.
• You only need to have an insurable interest at the time of the loss, not when buying the policy.

Conclusion

Export-Import Cargo Insurance is essential for businesses involved in international trade. Whether opting for an open policy or a specific policy, marine insurance provides crucial financial protection against the risks associated with transporting goods across borders. By understanding the different types of policies, the role of insurance certificates, and the principles that govern marine insurance, businesses can ensure that their goods are adequately protected throughout their journey.