(insurance) Insurance coverage, and by extension, an insurance settlement from an loss, that puts the insured in the same financial position (to be made whole) as before the loss. In marine cargo insurance, this requires that the insured take out insurance for all the costs of the shipment, including: invoice cost, packaging, inland freight, ocean freight, forwarder charges, consular fees, and even insurance premiums.
Exporters cover their loss of profits by insuring for their sales invoice value. Importers on the other hand, if they want to insure against lost profits, must ask for the valuation clause known as “Selling Price Less Incurred Expenses.” Otherwise, the importer will recoup only their purchase price plus related expenses, including customs duty if elected.
Cargo insurance is typically written with a 10 percent loading or policy advance. This additional 10 percent of the value is not necessarily intended to cover loss of profit. The intent is to cover costs overlooked in the original calculations, as well as unexpected costs like losses due to currency fluctuation.
Valuation can be handled two ways: through a valuation clause, or by use of a formula. If a valuation clause is used, the insurance premium is itself included in the valuation as a specific item to which the increase also applies. A typical valuation cause reads:
valued premium included at amount of invoice, including all charges in the invoice and including prepaid and/or advanced and/or guaranteed freight, if any, plus _____%.
This is usually 10% on exports.