Differentiate between an open cover and an open policy

Marine Insurance Policy Categories

The open cover is a category of marine insurance policy in which the insurance provider is ready to provide cover for all the cargoes which are being shipped during the policy term whereas an open marine insurance policy will provide cover for an indefinite number of requirements arising in the future.
An open marine insurance policy provides coverage for goods through an agreement between the insurer and the policyholder. Transported for the agreed period or for indefinitely until cancel the agreement by either of the parties.

Key Takeaways

• The “Exhaustion” Factor: An Open Policy is like a prepaid debit card. Every time you ship cargo, the value is deducted from your total Sum Insured. Once it reaches zero, the policy is dead, even if the year isn’t over.

• The “Blanket” Factor: An Open Cover is more like a subscription. It doesn’t have a “total limit” for the year; instead, it covers every shipment you make within the 12-month period, as long as each single shipment is below the “Per Bottom” limit.

• Legal Enforceability: An Open Policy is a stamped document and is legally enforceable on its own. An Open Cover is often considered an agreement to provide insurance, and individual certificates are usually issued for each declaration to make them legally binding.

• Per Bottom & Per Location: In an Open Cover, the insurer’s risk is capped per vessel (Per Bottom). If you load ₹10 Crore of cargo on a ship but your “Per Bottom” limit is ₹5 Crore, you are only half-covered for that specific journey.

• Administrative Ease: Both policies significantly reduce paperwork. Instead of negotiating rates every Monday morning, you have pre-agreed rates, packing conditions, and voyages set for the entire year.

Open-cover 

1. An open cover marine insurance, designed mainly to meet the requirements of those firms which have substantial transactions related to export and import. So, by an open cover policy, these firms will not have to make insurance agreements every time when making a transaction; rather cover several transactions within a specific period.
2. In an open cover insurance policy, the insurance provider and the insured make an agreement about the goods insured, the risks covered, the packing conditions, the voyages, rates of the cover, etc. The insured can claim insurance cover within these conditions that they agreed upon.
3. The tenure for this policy is valid for 12 months.
4. Can cancel this insurance policy by giving a written notice before 30 days.    
5. This is not a contract that would enforce; rather, in this agreement, the insurance provider would honor and accept the declarations made for ships, cargoes.
6. Mainly, open cover insurance can be subject to two major limitation clauses i.e. “Per Bottom” and “Per location”. By these clauses, the liability of the insurance providers becomes limited only up to the agreed amount. So, in case if there happens to be an accident and the losses are more than the agreed amount then the loss would be partially recoverable by the insurance provider i.e. up to the agreed amount.

Open policy 

1. An open policy can also refer to as “Floating Policy” which provides benefits to the clients with the help of considerable turnover and several dispatches.
2. The open marine insurance policy is usually for an agreed amount against which several declared consignments will be dispatched. Due to this, the sum insured reduces slowly by the amount of each declaration until the sum insured, exhausted finally.
3. The open policy is an enforceable contract and so it is duly stamped.
4. The open policy will cease after 1 year from its date of issue. However, the sum insured is important and may exhaust before or even after ceased the policy.
5. Can cancel an open policy by giving written notice before 15 days of cancellation.

Difference between Open cover & Open Marine insurance policy 

An Open Cover & an Open Marine Insurance Policy are both types of marine insurance policies. The primary difference between them is the level of coverage provided.

This marine cover plan is a contractual agreement between the insurer and the policyholder to provide coverage for all shipments made by the policyholder during a specified period. This type of policy is suitable for businesses with frequent shipments, as it eliminates the need for multiple policies and simplifies the insurance process.

On the other hand, an Open Marine Insurance Policy provides coverage for individual shipments. The policyholder must purchase a new policy for each shipment, and the coverage is limited to that shipment only. This type of policy is suitable for businesses with infrequent shipments or for individuals who require one-time coverage.

In summary, the Open Cover Marine insurance offers broader coverage for all shipments made during a specified period, while an Open Marine Insurance Policy provides coverage for individual shipments.

Additional Read: What is Open Marine Insurance Policy? 

Summary: Open Cover vs. Open Policy

Hence, an open policy would intend to cover an indefinite number of requirements in the future. Whereas an open cover insurance policy can act as blanket coverage for those companies which have frequent businesses. Thus preventing them from purchasing a new policy every single time when doing a shipment.

Frequently Asked Questions (FAQs)

Q1: What happens if I forget to declare a shipment under an Open Policy?

A) The “Automatic Coverage” clause usually protects you. As long as the shipment falls within the agreed parameters (voyage, goods, packing), the insurer is bound to cover it. However, you must declare it as soon as you realize the oversight and pay the premium.

Q2: Can I increase the Sum Insured of my Open Policy if it’s running low?

A) Yes. If your trade volume is higher than expected and your Open Policy is about to be exhausted, you can “top up” the policy by paying an additional premium to reinstate the Sum Insured.

Q3: Does the “Per Bottom” limit apply to Open Policies as well?

A) Yes. Even if your total Open Policy is for ₹100 Crore, the insurer will still set a “Limit Per Vessel” (Per Bottom) to manage their concentration of risk. You cannot put your entire ₹100 Crore of cargo on a single ship and expect full coverage.

Q4: Is an Open Cover cheaper than an Open Policy?

A) Not necessarily. The premium rates are usually based on the nature of the cargo, the voyages, and your previous claims history. The choice between the two is based on logistical convenience rather than cost savings.

Q5: Which one is better for a new startup with unpredictable shipping volumes?

A) An Open Policy is often better for startups because you can set a smaller, manageable Sum Insured (e.g., ₹50 Lakhs) and only pay for that specific capacity. An Open Cover is typically reserved for established players with steady, high-frequency logistics.

About The Author

Simran

MBA Insurance and Risk

With extensive experience in the insurance industry, Simran is a seasoned writer specializing in articles on marine insurance for SecureNow. Drawing from 5 years of expertise in the field, she possesses a comprehensive understanding of the complexities and nuances of marine insurance policies. Her articles offer valuable insights into various aspects of marine insurance, including cargo protection, hull insurance, and liability coverage for marine-related risks. Renowned for their insightful analysis and informative content, Simran is committed to providing readers with actionable information that helps them navigate the intricacies of marine insurance with confidence.