Under Insurance

Under Insurance refers to a situation where the insured amount declared by the policyholder to the insurance company is lower than the actual value of the subject matter insured or the insurable interest, resulting in the insured being unable to obtain full compensation when an insured event occurs. In foreign trade practice, it commonly arises in scenarios such as cargo transportation insurance and credit insurance. For example, if an exporter insures at 110% of the invoice value, but the actual value of the goods is higher than the insured amount due to freight, expected profit, etc., under insurance is constituted. Usage scenarios include: a letter of credit requires the insured amount to be 110% of the invoice value, but only 100% is actually insured; or when partial loss occurs to the goods, the insurance company pays indemnity on a proportional basis, and the insured must bear the difference themselves. Precautions: Under insurance may lead to the application of the principle of proportional distribution (average clause), i.e., indemnity amount = loss amount × (insured amount / insured value); in addition, the insurer may refuse to pay the portion exceeding the insured amount. It is the opposite of 'Over Insurance', which means the insured amount is higher than the insured value, and the excess portion is invalid. Foreign trade practitioners should accurately calculate the value of goods (such as CIF price plus expected profit), ensure the insured amount is sufficient, and pay attention to insurance clauses in letters of credit and contracts.