Export and import insurance policies protect businesses and cover them against various risks. Open Cover policy helps business owners to secure themselves against a variety of perils involved in export and import transactions. Export and import insurance has various types of policies for different users.
You can buy a customs duty cover along with an open cover policy under export and import insurance. A business owner may have his consignments covered under both policies. The open cover policy will continuously protect all consignments exported or imported throughout the given year. The declared amount reduces the sum insured for each consignment to be exported or imported. Also, the customs duty policy will cover any loss of customs duty due to damage caused to the imported goods
To know the usefulness of these policies, it is important to know what they are and how they offer protection under export and import insurance.
Open cover policy:
The policy period for an open cover policy can start from one year and can be renewed yearly. All the information related to the rate and term is included in this policy as per agreed conditions between the insured and the insurer. When the insured has to send any consignment, he must do the following:
- A declaration has to be provided to the insurance company along with the information related to the location of shipment and types of goods.
- The sum insured gets reduced according to the type and invoice of the consignment.
- Premium has to be appropriately paid by the insured on a regular basis.
Custom duty cover:
A custom duty policy is taken to cover any loss in custom duty incurred during an import consignment. This policy mainly protects the insured against the loss due to customs duty paid by the importer in case the goods that are imported arrive in damaged conditions. It is important that this policy is taken by the insured before the goods arrive.
Additional Read: How Should an Insured File A Claim Under Export-Import Insurance?
Case Study:
A cloth manufacturing company located in Hyderabad was in the business of exporting and import of cloth materials in domestic as well as international markets. It started its business from a small factory but the business has flourished and grown large. The products that it produced were of superior quality and hence the production and sales saw a huge jump year after year.
It exported finished goods to different parts of India. The finished products included shirts, jeans, and other men’s apparel. However, it imported the denim material required for the production of jeans from Malaysia.
As it had lots of export and import consignments going on throughout the year, it had taken an export and import insurance policy from a well-known marine insurer. This was an open-cover policy that provided protection to the shipments of finished products.
Once the imported material denim was found to be damaged and not up to the required standards, the company however had paid the billing amount as well as the customs duty for the imported material. The cloth manufacturing firm immediately contacted its insurance providers. Upon investigation, we found that the material was indeed damaged. Thus, the open cover policy and the customs duty policy bought by the cloth manufacturers came to the rescue.
Additional Read: To whom Would an Overseas Importer Report a Claim Under an Export & Import Insurance Policy?
The open cover policy protected against damaged denim material. The open cover policy brought along with the custom duty policy protected the cloth manufacturers against custom duty loss.
