The insured amount is the actual insured amount of the insured for the subject matter of insurance, and is also the maximum compensation amount borne by the insurer and the basis for calculating the insurance premium to be paid by the insured. The insured amount is not equal to the value of the goods, and can exceed the value of the goods. According to the practice of the international insurance market, the formula for calculating the insured amount is:
Insured amount = CIFx (1 + insurance premium)
From the above calculation method, it can be seen that not only the value of the goods itself is insured, but also the freight and insurance premiums. In addition, there is an insurance premium. The insurance premium is the transaction fee and expected profit paid by the buyer for this transaction, which is generally determined as a 10% premium in the business. Insurance companies generally accept this kind of over-value insurance.
In practice, if the trading parties conclude the transaction on CIF (or CIP), the above formula is used to determine the insured amount when applying for insurance; if the transaction is concluded on FOB or CFR (or FCA, CPT), when applying for insurance, FOB or CFR (or FCA, CPT) can be converted into CIF (or CIP), and then the insurance premium can be added.
Insurance Premiums are the fees paid by the insured to the insurer and thereby obtain the insurer’s insurance for the risk of cargo transportation, and are the consideration for the insured to obtain the right to compensate for losses.
The formula for calculating the insurance premium is:
Insurance Premium = Insured Amount x Insurance Premium Rate
The export cargo insurance premium rates of the People’s Insurance Company of China are divided into two categories: general cargo rates and specified cargo rates. General cargo rates are formulated according to different modes of transportation, different types of risks and different regions, but not by commodity. Specified cargo rates are used when insuring some designated commodities. All goods not included in the specified cargo rates are within the scope of general cargo rates.
Premium Example
A foreign trade company in my country imported a batch of goods worth CFR USD 12,000. It now insures all risks and war risks at the CIF price plus 10%, and the calculation is as follows.
(1) According to the premium rate table, the rates for all risks and war risks are 0.5% and 0.04% respectively, so the total rate is: 0.5% + 0.04% – 0.54%.
(2) Convert the CFR value into the CIF value, that is:
CIF = 12,000×1.1 = 13,200 (USD)
(3) The insurance premium is: 13,200×0.54% = 71.28 (USD).