When it comes to international transportation, there are a multitude of risks involved. From natural disasters to human errors, the possibility of unforeseen accidents and damages can't be ignored. That's why cargo insurance plays a vital role in protecting import and export cargo during transit.
While it may not always be necessary, having cargo insurance is highly recommended as it provides coverage for any potential losses or damages that may occur during transportation. In this two-part series, we will delve into the basics of cargo insurance and provide valuable insights on how to arrange it smoothly.
So what exactly is cargo insurance? Simply put, it is an insurance policy specifically designed for import and export shipments. Its primary purpose is to cover various unforeseen accidents and risks that could arise during transportation. Since international transportation involves longer distances and more trans shipment than domestic transport, the likelihood of damage or problems occurring increases significantly.
Cargo insurance covers a wide range of potential issues such as water damage to containers on ships or human error when reloading containers onto trucks. It acts as a safety net against these unpredictable events ensuring that your goods are protected throughout their journey.
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Now let's take a closer look at some key terms associated with cargo insurance:
1. Insured Amount:
The insured amount refers to the maximum sum that can be paid out by the insurer in case of an accident or loss. Typically, this amount is 110% of the CIF (Cost, Insurance & Freight) price listed on the invoice.
2. Insurance Premium:
The premium is the payment made by you (the insured) to the insurance company in exchange for coverage under their policy. The premium rate usually ranges from 0.3% to 0.5% of the insured amount depending on factors like route and type of goods being transported.
3. Scope Of Insurance:
It's crucial not to overlook what exactly your insurance policy covers before applying for one. There are two types of coverage: total loss and partial loss. Total loss refers to a situation where the cargo is completely damaged and rendered unusable, while partial loss involves damage to only a portion of the cargo. The premiums will vary based on the extent of coverage required.
When applying for cargo insurance, you need to provide certain information such as destination address, method of transportation, invoice amount, and item name. These details are essential for accurately assessing the risk associated with your shipment.
To better understand how cargo insurance works in practice, let's calculate an example together:
Imagine you're transporting machinery from Mumbai to Tokyo with the following conditions:
- Value of the machine: Rs 1 million
- Cost of transportation within India: Rs 50K
- Ocean freight from Mumbai port to Tokyo port: Rs 100000
To determine the insured amount (IA), we multiply the CIF price by 110%:
Product price (Rs 1 million) + Domestic fee in India (50K) + Ocean freight (Rs 1 lac) = CIF price.
CIF price x 110% = IA
In this case,
1 million + 50k + 1 lac = Rs 11,50,000
11,50,000 x 110% = Rs 12,60,000 (Insured Amount)
