Marine cargo insurance has been recognized for centuries as one of the essential services in world trade, contributing greatly to the confidence, stability and security of the interested parties as well as the transporters and bankers. The document which evidences an insurance contract is called Insurance Policy. According to established trading practices, the delivery of and payment for goods are made by means of a draft accompanied by shipping documents which mainly consist of Invoice, Bill of Lading and Policy or Certificate of Insurance.

Trade Terms and Cargo Insurance

Cargo insurance is arranged by the party who bears the obligation of insuring the goods under the sales contract that is the seller or the buyer, as the case may be. If the sales contract is on CIF or C&I terms, the exporter as the seller concludes the insurance contract on behalf of the importer who is the bearer of the risk. There is much diversity in the form and kind of sales contract. For the benefit of parties concerned, the so-called "Incoterms" define basic obligations of exporters and importers. There are several countries requiring by law that marine insurance on import shipments to these countries should be underwritten by local insurance companies.

(1) CIF Terms and Cargo Insurance
Insurance conditions are normally specified in the sales contract and/or Letter of Credit, but in cases where there are no specific instructions therein, it is usual to follow the practice of the trade. Of course, it is desirable to make the insurance conditions clear in the sales contract.
Normally the insured amount is shown in the sales contract and/or Letter of Credit. Current Incoterms provide that the insured amount should be not less than the amount of 110% of the CIF value. Under CIF terms, the exporter is bound to provide marine insurance covering the whole voyage up to the final destination and to furnish the importer with shipping documents including the insurance policy. There is another type of contract called C&I contract which is considered to be a variation of the CIF contract. Under C&I contracts, ocean freight is excluded from the price of sales contract since it is payable at the destination by the buyer. However, the obligation of the exporter relating to insurance is identical to that of CIF contract.

(2) FOB and C&F Contracts
Under FOB terms, the exporter is bound to load the goods onto the carrying vessel at his own cost and risk, but he does not need to arrange insurance to protect the interests of the importer, which will be insured by the importer. In the case of C&F contract, the position of the exporter relating to insurance is quite the same as FOB contract, since the insurance premium covering the ocean voyage is excluded from the price of sales contract. The difference between FOB and C&F contracts relates to whom the ocean freight is paid by. Under FOB and C&F contracts, the exporter has an obligation of sending a shipping advice to the importer immediately on completion of loading the cargo at the port of shipment, so that the importer may effect insurance without delay. On the other hand, the exporter bears the risk before loading for which he will have to arrange insurance on his own behalf. The importer's position regarding insurance protection under various trade terms is the reverse of the exporter's. The importer on CIF terms must rely upon the insurance arranged by the exporter, and on FOB or C&F terms he has to affect insurance by himself.

Insured Value and Insured Amount
Since it is impracticable to assess the market value of the insured goods at the time and place when and where the loss of or damage to them takes place during the course of transit, an agreement on the valuation of the goods is made beforehand between the insurer and the assured when the contract of marine cargo insurance is concluded. Such value is called "Agreed Insured Value" and the marine cargo insurance policy is called a "Valued Policy". The insured amount is the limit of the amount, for which the insurer is liable in respect of one accident, and insurance premiums are calculated upon this amount. Although the Insured Value and Insured Amount are different terminologies, the insured amount is normally fixed at the same as the insured value.