Ten Elements Marine Insurance Policy Contract

Marine insurance is a legal contract between the insurer and the policyholder in which the insurer promises to protect against damages that might occur during in-transit. A marine insurance policy benefits businesses and individuals involved in international trade and commerce. It protects both the shipper and receiver of goods.

What is the Purpose of Marine Insurance?

A marine insurance policy's primary purpose is to provide financial protection against the risks of loss, damage and theft of carriers and goods during transportation. The policy also protects against other risks, such as natural disasters, piracy and war. It is curated specifically to meet the protection needs of the shipper and the cargo category being shipped.

Also Read: Documents Required for Marine Insurance

1. Declaration

The declaration is the first section of marine insurance policy documents. It outlines the essential details of the policy, such as the names of insured parties, the coverage period, the subject matter insured (vessel, cargo, etc.) and the policy number.

The insured party entering into policy agreements is an individual or entity that purchases marine insurance. It can be the owner of cargo, vessel or any other party with a financial interest in the maritime journey.

2. Covered Risks**

The second element of marine insurance is the covered risks. Several types of risks arise during a maritime journey. These risks may include damage to vessels, loss of cargo, third-party liabilities or liabilities for injuries or death of third parties. A marine insurance policy must state all the covered risks clearly in the document to maintain transparency.

Also Read: Unexpired Risk in Marine Insurance

3. Premiums Detail

The premium is the amount paid by the policy buyer for the insurance coverage provided by the marine insurance company. It might vary depending on the type of coverage, the level of risk covered and the value of vessels or cargo. The documents must clearly mention all the details regarding the policy premium, including payment intervals, discounts (if applicable), etc.

4. Policy Limits

The maximum amount that the insurance company provides as compensation for claims is known as the policy limit. The policy limits of marine insurance might vary depending on the type of coverage selected and the coverage requirement of policy buyers. The policy documents must mention the details of policy limits to avoid any miscommunication during claims.

5. Valuation and Sum Insured

The policy documents must include the valuation and sum insured details. The valuation specifies how the insured value of the subject matter was finalised. For cargo, it might be based on the cost, invoice, value or market value.

For vessels, it might be based on the agreed value, market value or other valuation methods. The sum insured represents the maximum amount the insurance company will provide in the event of loss.

6. Transit or Voyage Details

One element of marine insurance is specifying the transit or voyage details. This section entails information regarding transit or voyage routes covered under the policy. It includes details of ports, stop points and locations and may also include information on deviation or voyage extension.

Also Read: Inland Transit Clause in Marine Insurance

7. Subrogation

This section of the marine insurance policy includes the details of the insurer’s right to act in your place after paying your compensation price. This means that once your compensation is settled, the insurance company can then pursue any third parties who are responsible for the loss caused. The reason for this clause in the policy is to make sure that the burden of loss is placed where it actually belongs.

8. Claim Procedures

Another crucial element of marine insurance is the details of claim procedures. This section clearly states all the details regarding the claim, including the reporting time of loss/accident, the deadline for document submission, and the exact steps to be followed to settle the claim swiftly. The information helps both parties follow a set procedure and avoid delays or conflicts during claim settlement.

9. Deductibles

Marine insurance policies have terms regarding deductibles. Deductibles are the amount that policy buyers have to pay from their pocket before the insurance comes into effect. The higher the deductible amount, the lower the premium price.

10. Exclusions

One of the most important elements of marine insurance is the exclusions section. This section lists all the perils, damages, losses, circumstances or conditions that will not be covered under the policy.

Some of the most common marine insurance exclusions are intentional damage and wear and tear. This section is mandatory in the policy documents to inform the insured about the scope of coverage and avoid conflicts during claim settlement.

Also Read: What Are Excluded Losses in Marine Insurance?

The marine insurance policy protects against several transportation risks, such as vessel loss, cargo damage, liabilities and third-party claims. There is a set procedure for handling these claims and compensations. Let us know them for better understanding:**

Claim Process in Marine Insurance

-Notification: The policyholder must notify the insurer as soon as possible after the event. Provide accurate details of all the damage to the vessel or cargo loss to estimate the claim value.

-Survey: The insurer will then appoint a surveyor to assess the damage. The surveyor will also check the cause of the damage and, if applicable, suggest the necessary exclusions and deductibles.

-Documentation: The policyholder must provide all the documentation, such as the original invoice, bills, certificates and policy documents. The insurer might ask for additional documents if necessary.

-Settlement: Finally, the insurer will approve the claim and offer the settlement amount per the policy terms and conditions. The policyholder can then either accept the offer, negotiate it or dispute it through litigation.

Compensation Calculation Process in Marine Insurance

The calculation of marine insurance compensation amount depends on various factors such as insured value, cause of loss and type of coverage chosen. Here are some of the calculation methods that insurers use.

-Agreed Value: As the name suggests, this method assigns a fixed amount to the insured property. The policyholder and insurer agree on this value at the initiation of a policy contract. Compensation is then paid based on this agreed amount regardless of the property’s market value.

-Actual Cash Value: In this method, the market value of the property at the time of loss is considered for compensation purposes. From that market value, the depreciation amount and wear and tear are deducted to get the final value.

-New for Old: This method provides full compensation for the insured property regardless of condition or age as long as a new or equivalent item replaces it.

You must have understood by now that marine insurance is a legal contract between the insurer and policyholder in which the insurer promises to protect against risks associated with marine transportation. However, to make this legally binding for both parties, the contract agreement must include all the crucial elements of marine insurance.

Both parties must read the marine insurance policy papers carefully. They must include all the elements and necessary terms and conditions. Failure to include these details can lead to the contract becoming null and void.

Businesses dealing in marine transportation must get a marine open policy for the protection of their good. For example, the TATA AIG marine insurance policy provides comprehensive protection for your cargo and has clear policies that include all necessary elements.

Also Read: What Are Features and Characteristics of Marine Insurance?

What is the element of insurance?

An element of insurance includes the principles, terms, and conditions of an insurance contract. Having all the necessary elements is crucial for making insurance legal and complete.

What are the 5 principles of marine insurance?

The five important principles of marine insurance are indemnity, insurable interest, utmost good faith, contribution, subrogation and proximate cause.

Who oversees the principles of Marine Insurance in India?

The General Insurance Council of India governs the principles of marine insurance in India. If one party breaches any principle, another party can sue them.

How is the cost of a marine insurance policy determined?

The cost of marine insurance is determined based on various factors, such as the cargo, route chosen, level of coverage required, vessel used and much more.