Marine insurance is crucial for businesses that transport goods over water. It protects your cargo and vessels from risks such as accidents, theft or natural disasters. Among the key terms you’ll often hear in this space are total loss and partial loss, but what exactly do they mean? Let’s find out.
Types of losses in marine insurance
Losses in marine insurance can happen in many forms. But broadly, they fall into two main categories:
- Total loss: When the insured goods are completely destroyed or are no longer usable.
- Partial loss: When only a portion of the insured property is damaged or while the rest can still be used or salvaged.
These categories help determine the compensation payable by the insurer. Knowing which type applies to your situation ensures you're neither under-compensated nor over-insured.
What is partial loss?
A partial loss refers to situations where only a portion of your cargo gets damaged or lost. This can happen due to accidents, weather disturbances or mishandling during loading or unloading.
There are two types of partial loss:
- General average: Shared loss between all parties involved in the voyage.
- Particular average: Specific to the cargo owner whose goods were damaged.
What is total loss?
A total loss occurs when the entire cargo is either destroyed, irretrievably lost or the cost of recovery exceeds its value.
There are two kinds of total loss:
- Actual total loss: When the cargo is completely destroyed (e.g., sunk in the sea).
- Constructive total loss: When damage is so severe that the cost of recovery or repair is more than the value of the cargo.
If your ship sinks in a storm and the goods are irretrievable, that’s a total loss. That’s when your total loss marine insurance will compensate you for the full insured value of your goods.
Conclusion
In shipping, things don’t always go as planned. Sometimes, only part of your cargo is damaged; that’s a partial loss. Other times, everything might be lost or destroyed; that’s a total loss. Before shipping, ensure your marine insurance policy covers the loss you’re most likely to suffer. You can choose a single transit insurance policy if you are doing a one-off shipment. Understanding these terms enables you to make better-informed decisions and be prepared for surprises.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It is advised to verify the currency and relevance of the data and information before taking any major steps. Please read the sales brochure / policy wordings carefully for detailed information about on risk factors, terms, conditions and exclusions. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.