Franchise is a common term in marine insurance and cargo transport insurance. It means that the insurer is liable to pay for the total loss only when the loss to the insured subject exceeds an agreed amount (or percentage), rather than paying only the portion exceeding the deductible. Unlike an absolute deductible, under which the insurer only compensates the portion exceeding the deductible, a franchise pays the full loss once the threshold is exceeded. It is commonly used in import and export cargo transport insurance, hull insurance, etc. Note: The insured should clarify the specific amount or percentage of the franchise and whether it applies to total loss and partial loss. Under CIF or CIP trade terms, insurance is arranged by the seller, and the buyer should understand the impact of the franchise clause on claims. Difference: Under a franchise, once the loss exceeds the deductible, the insurer pays the full loss, which is more favorable to the insured; under an absolute deductible, the insurer only pays the excess portion. Foreign trade practitioners should specify insurance clauses in the contract to avoid claim disputes caused by franchise settings.
📝 Examples
1. When exporting a batch of mechanical equipment, we insured against With Average (W.A.), and the policy stipulated a franchise of 2% of the invoice value. If the cargo loss reaches 3%, the insurance company will compensate for the total loss, not just 1%. (Note: When the loss exceeds the franchise, the full loss is compensated.)
2. When signing a CIF contract, the importer requires the seller to specify a franchise of 5% in the insurance policy, so as to obtain full compensation in the event of partial loss. (Note: The importer pays attention to the franchise clause to protect its own interests.)
💡 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)
For unfamiliar terms, use GlobalSync's multilingual email helper to confirm with your partner