Valuation - Based Policies

It is based on valuation. They can be:

1. Valued Policy:
In this policy, the value of subject matter of insurance is fixed at the time of contract. The value may relate to ship, cargo, freight and profit margin.
The loss is compensated on the basis of predetermined value.

2. Unvalued:
In this policy, the value of subject matter of insurance is not fixed at the time of contract. It is decided at the time of loss.
This policy creates disputes. It is not popular.

Marine Insurance Policies

Term Based Policies:
They are specified time or voyage. They can be:
1.Time Policy:
It is taken a specified period of time. It is generally for one year or loss.
a. It is suitable for insurance of ship. It can cover navigating ship or ship under construction.
b. It can cover single vessel or fleet or ship.

2. Voyage Policy:
It can be taken for a single from one port to another port. It covers a specified voyage.
a. It is suitable for cargo.

3. Mixed policy:
It is a combination of time policy and voyage Policy. It is taken for specified time and voyage.
a. It is suitable for both ship and cargo.

Different Risks covered under Marine Insurance

1. Perils of Sea:
They are casulties or accidents at sea. They are extraordinary and unexpected damages during voyages of the ship. They can be:

• Sea strom, cyclone, tsunami, heavy rain
• Collision with rocks, iceberg or another ship

2. Fire:
The fire may damage the ship and its cargo. Fire can results from:

• Explosion due to chemical reaction or accidents
  

• Inflammable events such as coal, oil, electricity
  
• Natural events such as lightning, thunder, friction

3.Jettison:
It is throwing away cargo or other goods to reduce the weight in the ship. It is deliberately
done.
4.Theft:
Cargo may be stolen by sea pirates and outsiders for personal gain.

• The theft should not be committed by people inside the ship.

They are captain, crew members and passengers of ship.
5.War Risks:
The war situation between two countries may create risks of loss to ships, cargo and freight. Enemies may capture the ship and cargo.

• Cargo can be subject to land risks during transportation. Marine policy also covers land risks.

6. Barratry:
It is cheating. It is mischievous and willfull action of captain and crew to cause loss. It can be:

• Theft of ship or cargo
• Setting ship and cargo on fire
  
• Illegal sales of cargo

The marine policy should clearly specify the risks covered.

Scope of Marine Insurance

The scope of marine insurance consists of:
1. Hull Insurance: Hull means the ship. The hull is insured against sea risks.

• The insurance can be for a particular journey or for a particular period of time. It can be for a single vessel or fleet.

2. Cargo insurance: Cargo means goods carried in ship to various destinations. Cargo is insured to cover risk of loss during transportation. The insured amount is payable to the cargo owner in case of loss.

3. Freight Insurance: Freight is charges payable for transportation of goods. Freight payable at destination is insured to cover risk of loss of freight to shipping company.

The main elements in the meaning of marine insurance are:

1. It is a contract of indemnity based on utmost good faith. It compensates for actual loss caused by sea risks up to the amount of contract.
2. The insurable interest in marine insurance should exist at the time of loss.
3. Ship, cargo and freight can be insured.
4. The insurance can be for single journey, multiple journeys or a particular period of time.
5. The compensation is paid in cash only.
   

Meaning of Marine Insurance

Marine insurance covers risk of loss to ship, cargo and freight in sea routes. It is a written contract between the insured and insurer. The insured agrees to indemnify the insured against risks of marine losses caused by perils of sea.
Marine insurance is the oldest type of insurance. It provides protection to exporter, importer and the shipping company. It is concerned with international trade.

Definition of Marine Insurance

• According to I.G. Crane

Marine insurance is a contract in which the insurer agrees indemnify the insured, in consideration of premium, against loss or damage caused by certain perils of the sea to the subject matter insured.

Stoke Value Policy

They can be:
1. Floating Policy:
A single policy covers the stock at different places. The places can be warehouse, port and in transit.

• This policy includes average clause. The premium is payable is payable on average basis.

• This policy is suitable for business who keep stocks at different places.

2. Declaration Policy:
It covers the maximum value of stock during policy period. The insured declares expected maximum value of stock during policy period. The insured declares expected maximum value of stock. Provisional premium is paid for 75 percent of insurance amount.

• The insured declares the actual value of monthly stock. The premium is calculated on average value of stock on maturity. Extra premium is paid or refunded.
• This policy is useful for businessmen who have fluctuating stocks.

3. Adjustable Policy:
The policy is taken for a definite value of stock. The insured provides information about actual value of closing stock every month. The rate of premium is adjusted according to the charging value of stock.

• This policy provides option to change the insured amount.

4. Excess Policy:
The insured takes two policies. The first policy is for minimum value of stock. The second policy is for excess value of stock. The excess value is calculated every month from information provided by the insured. The premium is based on average stock level.

Indemnity Policy

They can be:
1. Valued Policy:
The value of the insurance is agreed upon. This amount is payable to insured in case of loss.

• This policy is taken for property whose value cannot be determined after loss. For example, works at art, jewelery, antiques.

2. Average Policy:
It contains average clause. The compensation is proportionately reduced if the property is undervalued. This policy penalizes undervaluation. The formula used is:
Insured Amount Х Actual Loss
Value of Property


For example:

• Insured amount Rs. 50,000
• Value of property Rs. 100,000
• Actual loss Rs. 50,000

Compensation=50000 Х 50000
100000

3. Specific Policy:
It specifies insured amount. It has no average clause. The insurer pays full compensation for loss up to the insured amount.

• The insured does not compensate for the loss exceeding the insured amount.

4. Reinstatement Policy:
It reinstates the damaged property. Monetary payment is not made. The damaged property is replaced by new property.

• This policy is also known as "Replacement Policy".