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Unit 9: Marine Insurance

In fire and miscellaneous insurance, the insurable interest must exist: Notes
At the inception, i.e., while placing the property for insurance or we may say at time of
entering into the contract.
During the currency of the policy, i.e., the insurable interest should not end/alter during
the period of insurance.
At the time of loss, i.e., in the event of loss, the insured should have the interest in the
property so that he can claim the insurance money.

In marine insurance, the insurable interest must exist, at the time of loss. It may not be there at
the time of taking cover or during the currency of the policy.

In personal accident insurance, it is deemed that a person has unlimited financial interest on his
own life. However, in practice there is monetary limit to the amount of insurance which matches
the life of an individual. Insurable interest exists as between a husband and a wife, a parent and
a dependent child. Employer is deemed to have insurable interest in employee. A creditor has
interest in his debtor.

Example: Examples of Insurable Interest are:
A person has unlimited insurable interest on his own life.
An owner of the property (and joint owner) has insurable interest in the property.

A bank has insurable interest in the goods on the mortgage of which, it has advanced
loans. The interest is limited to the amount of the loan. Usually, under such
circumstances, the policies are issued in joint names of the insured and the bank.
The owner of a motor vehicle has insurable interest in the vehicle as well as in a
potential third party liability. If a third party is injured in the accident, the damages
payable to the third party would be a financial loss to the insured. Hence, he can
insure his third party liability also.

A ship owner has insurable interest in the ship owned by him. Cargo owners, both
sellers and buyers, have insurable interest in the goods owned by them. A ship
owner has insurable interest in the freight he is going to get by carrying the cargo.
9.1.2 Indemnity

You must understand that the objective of insurance is to indemnify i.e., to place the insured in
the same financial position as he was just before the occurrence of loss. The principle prevents
the insured from making a profit out of insurance. Insurance only makes good the loss and
ensures public interest at large. The indemnity is the net loss suffered by the insured, and
therefore, if there is any salvage/left over of the damaged property, the value of the salvage is
deducted from the amount of loss subject to a maximum of the sum assured.
There are four methods of indemnification in general insurance, namely:

Cash Payment
Replacement
Repair

Reinstatement

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