Valued Policy vs Unvalued Policy in Marine Insurance

Marine insurance is a category of insurance, protecting the insured against the loss or damage to the insured property from the origin to the destination. The insured property can include vessels or ships, cargo, terminals, on-shore and offshore properties, hulls, etc.

Ship owners, freight forwarders, and cargo owners can purchase marine insurance to protect their property against the perils of the sea. Under marine insurance, there are two distinct types of policies: valued and unvalued, which are discussed in detail below.

Moreover, marine insurance is not restricted to waterways. It covers other modes of transportation like air, land and rail too.

A valued marine policy is a type of insurance that assigns a predetermined value to the insured property, i.e. a vessel or cargo, etc. This type of policy is distinct from other insurance policies as the value of the property is fixed at the beginning of the policy, unlike other insurance, where the value is determined after the damage takes place.

The insured and the insurer fix the value of the property, which is paid out if an accident or event damages it. Valued policies are generally used to insure high-value assets or goods such as works of art, antiques, or rare items.

They are also beneficial in cases where the value of goods fluctuates significantly, making it difficult to ascertain the value at the time of loss. This type of policy is relevant for ship owners, freight companies, and maritime business people as it mitigates the risk and uncertainty involved in marine activities.

Benefits of Valued Policy

Certainty of Compensation: A valued policy provides certainty in terms of compensation in the event of a loss. The insurer and insured both know the amount involved in the agreement.

Therefore, they can both prepare and plan their risk and financial strategies. Such an arrangement is beneficial for high-value goods, where even a slight fluctuation can lead to a significant difference in compensation.

Easy to Administer: Since the value of goods is predetermined, the insurer does not need to conduct a detailed inspection at the time of loss. When the insured registers a claim, the insurer can confirm the loss and pay the compensation at the agreed-upon value.

Assists the Insured: The insured knows the value of compensation he will receive in case of an accident or damage. Therefore, he can plan strategies to minimise the risk.

Considerations in Valued Policy

One significant consideration in a valued policy is the fluctuation of the value of the insured property. It is essential to know that if the value of the insured item depreciates, the compensation will not be reduced.

Similarly, if the value of the insured item increases, the insured will not be eligible to receive any additional value of compensation from the insurer.

The concept of an unvalued marine policy is similar to general insurance, where the value of the property or goods insured is not ascertained when buying the policy. The value of the goods is determined at the time of loss.

Unvalued policy plays a significant role in marine insurance, as it allows one to determine the exact value of goods at the time of loss or accident. Such flexibility works in favour of insured items whose value is prone to fluctuation from time to time, like perishable goods.

Though the value of goods exists when buying insurance, it is not considered; instead, it is left to be calculated at the time of actual loss.

Since the risk is assumed to be less, the compensation payout will also be lower compared to a valued policy. The insurer pays the amount of actual loss incurred up to the maximum coverage amount specified in the policy.

Benefits of Unvalued Policy

Offers More Flexibility: Unvalued policy offers more flexibility as compared to valued policy. Since the value of goods is not fixed at the time of buying the policy, they can receive compensation for the actual loss or policy amount.

Fixed Premium: In an unvalued policy, the premium is fixed as it is not based on the actual value of goods or property insured. Thus, the insured has a fair idea of the premium cost for the insurance, allowing him to set his budget accordingly.

Simple Process: Since there is no need to pre-determine the value of goods, buying insurance is simple. It saves time for the insured and insurer.

Covers Losses for Unknown Value of Goods: In unvalued policies, coverage is provided irrespective of the value of goods. This is useful for new cargo or vessels whose value cannot be estimated at the time of buying the insurance.

Considerations in Unvalued Policy

When buying an unvalued policy, one must consider the nature of the cargo. Utmost care must be taken to ensure that a high-value cargo is adequately insured in the event of a loss.

Similarly, the policyholder must also pay attention to the voyage details like the route, duration, etc. An unvalued policy may provide for a total or partial loss. Hence, one must review the policy to ensure it meets the requirements adequately.

Here is a comparative analysis of valued and unvalued policies in marine insurance on the basis of premium, claim process, and risk assessment.

Premium Calculation: The method of premium calculation differs for valued and unvalued policies. In a valued policy, the premium is calculated based on the value of goods or property that is insured. Therefore, the premium is higher for high-value goods and lower for low-value goods.

On the contrary, the premium for an unvalued policy is based on the estimated value of the goods insured. In such a case, the premium may be higher or lower than the actual value.

Claim Process: The claim settlement process in valued insurance is straightforward as both the insured and insurer know the value of the goods insured and the compensation that must be settled.

However, in unvalued policies, the value of goods is not predetermined. Therefore, at the time of claim settlement, the value of goods damaged must be calculated. The insurer is liable to pay only the actual value of loss incurred by the insurer, making the settlement process complicated.

**Risk Determination:**The way risk is determined in valued and unvalued policies is also significantly different. In the case of a valued policy, the value of the goods is calculated at the time of buying the policy and the premium is decided accordingly. It means the insurer and insured know the value of risk and the amount involved in case of any unfortunate event.

In unvalued policies, the risk is not ascertained at the beginning of the policy. Instead, the amount of loss is calculated after the actual loss or damage is incurred. Therefore, neither the insured nor the insurer knows the exact value of the goods. Such policies are more riskier than valued policies.

The shipping industry is incredibly vast and exposed to several dangers beyond our control. Therefore, there is a need for insurance to protect the interests of the various entities involved. Marine insurance in India is categorised based on two factors: the coverage of the policy and the structure of the insurance contract.

Freight Insurance: Freight insurance covers the loss of freight or cargo caused by the perils of the sea. This type of insurance coverage protects the shipping company or the logistics provider against damages caused to the shipment during transit.

Marine Cargo Insurance: Marine cargo insurance protects cargo owners against loss or damage to cargo, occurring during transportation. It covers damage caused by mishandling, damage, or losses. This type of insurance also covers third-party liability, which compensates for any damage caused to the ship, terminal, port, railway track, or other cargo.

Hull & Machinery Insurance: Hull is the most essential part of a vessel that protects the cargo from being damaged. Hull insurance protects the ship along with the torso, furniture, and other articles of the ship like the machinery, equipment, etc. Since this type of insurance protects the vessel and the machinery, it is referred to as hull & machinery insurance.

Liability Insurance: This type of insurance offers coverage for the owner or operator’s liability that arises due to damage or loss caused to any third party. Liability insurance includes all forms of damage, such as bodily injury, property damage, pollution, cargo damage, etc.

Open Policy: An open policy is a type of marine insurance policy that offers protection to several shipments of the insured during a specific period, such as 12 months. Therefore, the insured is not required to buy separate policies for each shipment. Such insurance is beneficial for entities that are involved in high-volume trade as it covers all their consignments under a single policy.

Time Policy—As the name suggests, this type of policy allows the insured vessel to make any number of voyages during that time. In most cases, the policy is valid for one year. However, the parties may agree on different time durations as needed.

Fleet Policy- Those involved in the shipment business can opt for fleet insurance if they own multiple vessels that travel. Under this type of insurance, all the vessels are insured under a single policy, making the administration of policies simple.

Some other types of policies include single vessel, mixed policy, block policy, port risk, wager, and so on.

Marine insurance is crucial in the shipment business as vessels and cargo are exposed to a plethora of risks in the water. Valued and unvalued policies are among the popular types of marine insurance policies.

Both these policies differ from each other significantly in terms of premium calculation, compensation, risk assessment, and so on. Therefore, those involved in the marine industry must pay close attention to the unique requirements of their businesses before opting for any of the policies. It is also crucial to choose the insurance provider after careful consideration.

With Tata AIG, you can opt to buy a marine open policy or any other type of policy suitable for your business.

The marine insurance policies offered by Tata AIG offer financial protection and peace of mind to the insured. They are cost-effective, comprehensive, and tailor-made to suit the needs of Indian companies operating worldwide.

When was marine insurance introduced in India?

The East India Company introduced marine insurance in India in the 17th century when the British ruled the country.

What does marine insurance cover?

Marine insurance covers various instances that cause damage to vessels or goods. It includes:

Total loss

Sinking, fire explosion, or stranding

Earthquake

Lighting

Natural calamities

Collison, derailment, overturning

Loss during loading or unloading

What are the exclusions of marine insurance?

The following are the exclusions from marine insurance:

Losses resulting from terrorist activities, civil unrest, wars, etc.

Any loss or damage caused by the policyholder or his employees intentionally

Losses from delay

Losses due to wear and tear, deterioration, etc.

Loss occurring due to improper packing, unseaworthiness, etc.