Deduction of Insurance

Deduction of Insurance is a cost adjustment mechanism in international trade concerning cargo transportation insurance. Its core meaning is: under the price terms agreed by the buyer and seller (such as CIF, CIP), although the seller is responsible for insuring and paying the insurance premium, if the actual insured amount is lower than the amount stipulated in the contract or required by customary practice, or the insurance coverage is insufficient, the buyer has the right to deduct the corresponding insurance amount difference from the payment due. Usage scenarios are mostly seen in letter of credit settlement or claims: when the insurance policy submitted by the seller shows that the insured amount is less than 110% of the invoice amount (a common minimum requirement), or the insurance was not taken out according to the agreed risks, the buyer or the issuing bank will execute the deduction. Precautions include: the deduction amount must have a clear basis (such as contract terms, UCP600, or Incoterms rules), and the deduction must not be confused with the right to reject goods or claims. Unlike 'premium deduction', which refers to directly deducting the premium itself, 'deduction of insurance' targets the insufficiency of the insurance coverage value; the difference from 'insurance claim' is that deduction is an adjustment of payment before or during the event, while a claim is a recovery from the insurance company after the event. Foreign trade practitioners should ensure that the insured amount and risks strictly match the contract to avoid profit loss or disputes caused by deduction.