Over Insurance refers to an insurance arrangement where the insured amount declared by the policyholder to the insurer exceeds the actual value of the insured subject matter. In foreign trade, it commonly occurs in cargo transportation insurance, credit insurance, and similar scenarios. Causes may include: the policyholder misjudging the value of goods, exchange rate fluctuations, duplicate insurance, or intentionally over-insuring to obtain improper benefits. According to insurance law, over insurance does not render the contract invalid, but the portion exceeding the insurable value is invalid, and the insured cannot receive compensation exceeding the actual loss. If the policyholder over-insures in bad faith, the insurer may rescind the contract. It is the opposite of Under Insurance, which means the insured amount is lower than the insurable value, and the insured must share losses proportionally. Note: Foreign trade enterprises should accurately calculate the CIF value of goods to avoid premium waste caused by over insurance; also, over insurance should be distinguished from co-insurance and duplicate insurance, which involve multiple insurers. In letter of credit settlement, if the L/C requires the insured amount to be 110% of the invoice value, over insurance should not be made, otherwise the bank may refuse payment.
📝 Examples
1. When our company insured marine cargo, we mistakenly included freight and expected profit in the insured amount, resulting in over insurance. The insurer only compensated based on the actual value of the goods, and the excess premium paid could not be refunded. (Note: Miscalculation leads to over insurance, resulting in premium loss)
2. When the letter of credit requires the insured amount to be 110% of the invoice value, if the seller insures for 150%, it constitutes over insurance, and the bank may refuse payment because the insured amount does not conform to the L/C. (Note: Risk of over insurance in L/C scenarios)
💡 Foreign Trade Tips
Foreign trade terms are the foundation of international business communication
Trade practices may vary slightly by country; pay attention when using them
When using terms in contracts, specify the applicable version (e.g., Incoterms 2020)
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