Why is marine insurance important in international trade?
Firstly, transporting commodities from one country to another over seas and oceans poses the consequent risks such as dakoits or damage. So, there's a need to insure both the vessels and the cargo to keep the sense of safety to do business favourably.
Secondly, we have many ways to do this insurance, but each has its disadvantages. One way is to avoid the risks, it means you do not do anything and so, do not gain anything. The second one is to prevent the risks by using precaution and damage reducing methods, this way also cannot stop accidental risks. The third way, you insure yourself (risk assumption) by save an amount of money to compensate for the loss if it happens, but not everyone have enough money.
Another way is to get the insure by an organization specializing in insuring so that by doing many cases of same business, they have enough money to compensate for your property loss. This organization is a marine insurance company. By marine insurance, businessmen can do their business favorably but not have to worry about the risks.
Therefore, marine insurance is the main objective demand of people offshore.
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In an international trade, the seller and the buyer are situated far apart and it is necessary to use mechanism to transport the goods through air, water or rail or use all the three. These transportation have inherent risk of loss in the transit. Hence it is necessary that insurance is obtained to cover the loss in transit due to natural perils.
Trade insurance is common known as credit insurance. These types of policies are purchased by private businesses who wish to insure their assets and accounts receivable from extended credit risks such as default, insolvency, bankruptcy, and the like. Private insurance agencies and export credit agencies offer these policies, which are a subtype of property and casualty insurance. Political risk insurance also falls into this category and insures businesses against non-payment by foreign buyers due to…