Marine Insurance: Types & Functions

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  • 0:04 What Is Marine Insurance?
  • 0:29 Types of Marine…
  • 2:13 Contract Standards
  • 4:10 Lesson Summary
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Lesson Transcript
Instructor: Tammy Galloway

Tammy teaches business courses at the post-secondary and secondary level and has a master's of business administration in finance.

In this lesson, we'll define marine insurance. You'll also learn about the four types and general standards outlined in most policies. We'll also provide examples for further clarification.

What Is Marine Insurance?

Cregg just started a marine cargo business and contacts his insurance agent to discuss insurance coverages. Marine insurance protects against business losses incurred during water transport operations. The insurance agent, Paul, asks Cregg to tell him more about the business. Afterwards, Paul explains the different types of marine property coverages and contract policy standards. Let's see what they discussed.

Types of Marine Property Coverages

Paul starts by defining a few terms Cregg needs to understand. Perils are risks. Insurance policies have covered and excluded perils. When Cregg receives his marine policy, it's imperative he review the policy to understand coverages and exclusions. Open cargo is another important term; it means the insurer agrees to pay for covered losses incurred for a specific period of time when the insured provides an average value and pays the premium. Cregg asks Paul to define and explain ''premium''. Premium represents the cost of coverage. Premiums are typically paid monthly, quarterly, or annually for most insurance policies. For marine insurance, the company may require a premium per shipment.

Paul now explains the types of marine property coverages:

  1. Hull protects the vessel during transportation within a specific geographical location. Out-of-region and international locations are typically excluded unless stated.
  2. Cargo reimburses for the value of incoming and outgoing freight. For example, if Cregg's inventory costs $25,000, he would receive a check for that amount if the ship sank during transportation.
  3. Freight Revenue pays for profit in the event of a loss. For example, if the cost of inventory is $25,000 and Cregg's profit would have been $10,000, the insurance company would pay $10,000 under this coverage.
  4. Negligence covers the shipper's legal liability. For example, if the shipment became damaged because Cregg's crew did not properly crate the goods, the insurance company would pay for the damaged goods.

Afterwards, Paul explains the contract standards.

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