Insurance can be arranged by an insurance broker or an insurance company. An insurance policy is issued when the goods are insured, but it is also usual to use a ‘certificate of insurance’ which is used as an evidence of insurance.
A policy is a contract, a legal document, and principally it serves as an evidence of the agreement between the insurer and the person taking insurance.
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The marine insurance policy or certificate forms part of the shipping documents. A policy is also used as collateral security when an exporter gets an advance against his bank credit.
Individual policies for a single shipment are seldom used by companies regularly engaged in foreign trade. Exporters normally insure under long term policies, known as ‘Open Cover’. These contracts may run for a fixed time or indefinitely until cancellation.
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As evidence of insurance of each shipment, the insured or his insurance broker can issue a certificate of insurance, which gives all the information contained in an insurance policy.
The open cover gives the exporter automatic, continuous coverage. It also saves him the trouble of having to arrange for protection every time he makes a shipment, and he always knows his exact insurance costs. This makes it easier for him to quote a landed sales price.
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On a CIF contract the exporter sends the certificate of insurance to the customer, for him to claim at the port of destination if the goods have been damaged on the ship.
It is a common practice to insure for 10% above the CIF value of the goods, in order to allow for problems involved in replacing the goods, waiting for the money etc. The goods may be insured for even higher amounts – for example, to cover loss of import duty paid on products which have subsequently disappeared.