Under Insurance

Under Insurance refers to an insurance status where the insured amount declared by the applicant to the insurer is lower than the actual value (or insurable value) of the subject matter insured. In foreign trade cargo transportation insurance, it is usually required to insure at 110% of the invoice amount (i.e., invoice value plus 10%). If the insured amount is lower than this standard or lower than the actual value of the goods, it constitutes under insurance. Its core consequence is: when an insured event occurs, the insurer compensates according to the ratio of the insured amount to the insurable value, and the applicant must bear the loss of the difference themselves. Usage scenarios are mostly seen when importers under-declare cargo value to save premiums, or exporters insure at an amount lower than required by the letter of credit. Precautions: In letter of credit settlement, if the L/C stipulates that the insured amount is 110% of the invoice amount, the insurance policy submitted must meet this requirement; otherwise, it constitutes a discrepancy. In addition, under insurance is not equal to a deductible or insufficient insurance application; the former is proportional compensation, while the latter may affect the validity of the contract. It is the opposite of 'full insurance,' under which losses can be fully compensated (within the insured amount). Foreign trade practitioners should ensure that the insured amount covers the actual value of the goods and expected profit, avoiding penny wise and pound foolish decisions.