Franchise Clause in Marine Insurance and How Does It Work?

Marine transport (specifically, waterways) is exposed to a relatively higher degree of risk as compared to the other modes of transport. The perils that affect the transit are the risk of weather or natural hazards, international conflicts, theft and attacks, etc. This makes marine insurance an essential component for all the parties associated with the transit of goods. In the article below, we shall understand the franchise clause in marine insurance.

Read more
Protect your goods from losses or damages just ₹500*
₹10 lakh cover @ ₹591/transit*

Expert Advice

Buy Right

Instant Policy

Quick & Hassle free

Dedicated Team

Speedy Claims

*Premium varies on the basis of Occupancy, Business Activity & Coverage Type

Plans Start from ₹591/transit*
We have an ideal plan for you

Step 1/2
Get Updates on WhatsApp
By clicking on "" you agree to our Privacy Policy and Terms Of Use, and also provide us a formal mandate to represent you to the insurer and communicate to you the grant of a cover.

*Premium varies on the basis of Occupancy, Business Activity & Coverage Type

Just a step away from the quotes
Step 2/2

Popular Cities

Get Updates on WhatsApp
By clicking on "" you agree to our Privacy Policy and Terms of Use, and also provide us a formal mandate to represent you to the insurer and communicate to you the grant of a cover.

*Premium varies on the basis of Occupancy, Business Activity & Coverage Type

Marine Insurance

Marine insurance is a contract between the insurer (insurance company) and the insured (the buyer of the policy), wherein, the insurer agrees to compensate the insured, in case of maritime losses. A marine insurance policy protects against different risks which include ship collisions, ship attacks, fire, natural calamities, etc. The insured pays a certain amount as a premium in consideration of the guarantee and protection he receives from the insured.

There are different types of coverage options available under a marine insurance policy that offer protection to the cargo, vessels or both, depending on routes taken and other factors. These insurance contracts are well-laid-out contracts which have to be followed by both parties.

Related Articles

 
Most Restrictive Clauses under Marine Open Insurance

18 Aug 2022

Marine insurance is no less than a safe haven for shippers and
Read more
International Cargo Clauses & Inland Transit Clauses in Marine Insurance

13 Aug 2022

Marine insurance coverage is divided into two types. One is
Read more

Franchise Clause in Marine Insurance

A franchise clause in marine insurance policy states that the insured will pay for losses if the damage or losses occur under a particular agreed amount. In case the damage is more than the specified amount, the insurer will be liable to pay the damages.

The franchise amount is determined based on the percentage of the sum insured. In such cases, the insurance companies will not pay for the losses incurred below the mentioned franchise value on the insurance policy. If the losses exceed the franchise amount, then the insurance company covers the full damage.

Let us understand by taking an example

An importer buys a marine insurance policy for protecting the raw materials. The sum insured of this policy is Rs 50 lakhs with a franchise clause of 5%. Thus, the minimum threshold amount for the franchise clause works to Rs 2,50,000.

Situation1:

The importer upon arrival declares the damages of Rs 1,00,000 to the insurance company. Since the damage is less than Rs 2,50,000 (franchise amount), the insurance company would not pay for the damages.

Situation 2:

If the importer declares the damages of Rs 5,00,000 to the insurance company, the insurance company is liable to pay for the losses. The damage recovery will be the full amount (Rs 5,00,000) provided it fulfils all the required conditions.

Difference between Franchise Clause and Excess Clause

Apart from the franchise clause in marine insurance, there is another clause which limits the insurance company’s financial responsibilities. It is the excess clause. In an excess clause, the insured agrees to be responsible for a minimum threshold amount (same as the franchise clause).

The insurance company is liable to pay for damages only for the amount over the agreed amount. Let us continue with the same example:

Insurance Cover: Rs 50,00,000 Insurance Company’s Payment
Under the 5% Franchise Clause Under the 5% Excess Clause
Loss Claim: Rs 1,00,000 Nil (since less than Rs 2,50,000) Nil (since less than Rs 2,50,000)
Loss Claim: Rs 5,00,000 Rs 5,00,000 (since more than Rs 2,50,000) Rs 2,50,000 (Rs 5,00,000- Rs 2,50,000)

Conclusion

A franchise clause in marine insurance may be a fruitful decision, but it is always recommended to carefully consider all the options available and select the best suited for your business. The premium amounts of marine insurance policy may vary depending on the option selected. Also, understanding insurance terms plays a prominent role in decision-making.

Written By: PolicyBazaar - Updated: 28 December 2022