Export and import insurance policies protect businesses and cover them against various risks. This policy helps the business owners to secure themselves against a variety of perils involved in export and import transactions. An export and import insurance has various types of policies for different users.
A customs duty cover can be bought along with an open cover policy under an export and import insurance. A business owner may have his consignments covered under both the policies. The open cover policy will provide continuous protection to all the consignments that are exported or imported for the given year. For each consignment that is to be exported or imported, the sum insured gets reduced by the respective declared amount. Also, the customs duty policy will cover for 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 properly 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 custom 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?
A cloth manufacturing company located in Hyderabad was in the business of export and import of cloth materials in domestic as well as international markets. It had 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 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 which provided protection to the shipments of finished products.
Once the imported material of 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 custom duty for the imported material. The cloth manufacturing firm immediately contacted its insurance providers. Upon investigation, it was found that the material was indeed damaged. Thus, the open cover policy and the custom duty policy bought by the cloth manufacturers came to the rescue.
The open cover policy protected against the damaged denim material. The custom duty policy which was brought along with the open cover policy protected the cloth manufacturers against the custom duty loss.