Marine insurance is crucial for businesses involved in the trade. A marine insurance policy provides financial protection against the physical loss or damage to the insured cargo, ship or vessel while transporting the property. Marine insurance provides coverage against various marine losses. Though you can get comprehensive financial protection against various marine risks, it is important to be aware of various marine losses. There is a total loss, actual loss, constructive loss, salvage loss, etc., when it comes to marine losses. A clear understanding of different types of marine losses can help you get your claims settled smoothly. In this content, calculation of salvage loss in marine Insurance is considered a key dimension.
What is the salvage value in marine insurance?
In general terms salvage value meaning the value of salvaged or scraped goods. salvage value is the estimated value of an asset at the end of its life. That means salvage value is the asset value after factoring in depreciation completely.
In marine insurance, under salvage law, a third party aiding in sea peril recovery is entitled to ‘salvage’ compensation. Salvage charges are generally covered by marine cargo insurance policies. As per Section 65 in the Marine Insurance Act 1963, salvage charges refer to.
- Subject to any express provision in the policy, salvage charges incurred in preventing a loss by perils insured against may be recovered as a loss by those perils.
- ‘’Salvage charges’’ means the charges recoverable under maritime law by a salvor independently of contract. They do not include the expenses of services in the nature of salvage rendered by the assured or his agents, any person employed for hire by them, for the purpose of averting a peril insured against. Properly incurred expenses can be recovered as particular charges or general average loss, depending on the circumstances.
That means salvage charges are recoverable by the salvor either as a particular average loss or a general average loss.
Let us see how to calculate salvage value in the marine insurance policy.
How is salvage loss calculated in the marine insurance policy?
The salvage value of any asset is its value of it at the end of its useful life. Hence, the salvage value is calculated as –
Salvage value = Initial value – (depreciation X useful life in years)
In marine insurance, the insured receives the settlement as net sale proceeds. This occurs when the insured subject matter is significantly damaged or sold due to insured perils before reaching its destination.
Here, the insured can recover the total loss, deducting the settlement (net sale proceeds) from the marine insurance company. And this difference amount recovered is known as ‘salvage loss.’
Salvage loss = Total loss – net sales proceeds
Thus, calculation of Salvage loss in Marine Insurance involves assessing the expenses and compensations incurred during the rescue or recovery of insured property.
Conclusion
To sum up, it is important to understand the different types of marine losses before you buy a marine insurance policy as it helps you at the time of settlement of claims. Knowing the marine insurance policy in detail, the scope of coverage, the types of losses it covers, how the losses are calculated, and the exclusions in the policy are extremely important to avoid the hassles during the time of marine insurance claim settlement. You can customise the marine insurance policies as per the need of your business. Understand the scope of coverage and terms and conditions before you avail of the policy.
