Cover Note

A Cover Note is a temporary insurance certificate issued by an insurance broker, agent, or insurance company to the insured before the formal policy is issued, to prove that the insurance contract has been established and to state the main insurance conditions. In foreign trade, it is often used when goods have been shipped but the formal policy has not yet been completed, and the importer or bank requires proof of insurance for settlement of exchange or taking delivery of goods. Its legal effect is basically the same as the formal policy, but its validity period is usually shorter (e.g., 30 days), and it may state 'subject to the formal policy'. Usage scenarios include: the letter of credit requires submission of an insurance policy but the policy has not been issued, goods have been loaded on board and insurance is needed immediately, or declaration under an open cover. Precautions: the content of the cover note must be consistent with the terms of the letter of credit, otherwise the bank may refuse payment; if there is a conflict between the formal policy and the cover note, the formal policy shall prevail; some letters of credit explicitly do not accept cover notes. The difference from a formal policy is that a cover note is a temporary document while a formal policy is the final certificate; a cover note may be unilaterally cancelled by the insurance company, whereas a formal policy cannot. It differs from a Certificate of Insurance, which is a simplified policy but not a temporary document.