Please find as below.
Case 1
Original LC
Q uantity of goods = x units LC amount 100000
Partial shipment allowed
Insurance asked for 110 % of CIF value
Transferred LC
Quantity of goods = x units LC amount 90000
Partial shipment not allowed
2nd bene invoice will be for 90000
1st Bene will substitute Commecial Invoice obviously for 100000
Now if 2nd bene insures for 110 % of 90000 Insuarance policy will be for only 99000
and so docs will become discrepant
Therefore transferred LC must ask for insured amount of 110 000 which is 122.22 % approx
of 90000.
By quoting in % terms supposedly we hide the middleman 's commision from the 2nd
bene… ( Personally I think it is just convention to quote required insuarance in % . Any 2nd
bene can use simple math to work backwards and figure out the LC amount and hence the
margin)
Another case to make the calculation clearer.
Case 2 Original LC
Quantity of goods = x units LC amount = 100000
Partial Shipment allowed
Transferred LC
Quantity of goods = x/2 units LC amount = 40000
Bene ships goods and commercial invoice is for 40000
1st Bene will substitute invoice for 50000
Insuarance by 2nd bene therefore should be for 110 % of 50000 = 55000
Here % insuarance asked for should be 137.5 % of CIF value (= (55000/40000)* (100)
The idea in all cases is to ensure that the goods are insured for the amount asked for in original LC and that the actual LC amount i.e the amount that the middleman or 1st bene is charging the ultimate buyer shuld be hidden from 2nd bene
(I might add that many seem to assume that a 2nd bene has very limited intelligence just because he sells through a middle man
)
Hope this helps…
