Nika Melnik  

Foreign-Currency Denominated Insurance Policies

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Who and under what circumstances is entitled to them?

Constant currency exchange rate fluctuations keep adding to the growing uncertainty in what tomorrow brings. Since the insurance in its essence  is aimed at bringing confidence, the issue of concluding insurance agreement denominated in foreign currency has been coming up pretty frequently lately. The main purpose of such policies is to guarantee that the indemnity, just like the insurance premium, will be paid in the foreign currency as well. This article is called to review the provisions under which entities operating in Ukraine can count on using the benefits of foreign-currency denominated insurance agreements.

The key factor which determines whether or not an insurance policy can be denominated in foreign currency is the country of residence of Insured/ Beneficiary under the agreement.
The key factor which determines whether or not an insurance policy can be denominated in foreign currency is the country of residence of Insured/ Beneficiary under the agreement. Let’s review the following cases. 

The Insured and Beneficiary are both residents of Ukraine. In accordance with Insurance Act of Ukraine the residents are allowed to pay the insurance premiums which are denominated in national currency only meaning that they, therefore, are entitled to insurance indemnity denominated solely in hryvna as well.

The Insured is a resident of Ukraine, but Beneficiary is a non-resident of Ukraine. In this case the policy shall also be denominated in hryvnas, since the insurer is bound to pay indemnity in the same currency in which the insurance premium was paid. However, subject to payment directly to the beneficiary, the indemnity can be denominated in foreign currency. It is calculated in accordance with official exchange rate effective in the day on which an insured event took place.

The Insured is non-resident company of Ukraine. That is actually the only case when the insurance agreement can be denominated in foreign currency. Obviously, the valuable interest of the insured must be tied to Ukrainian territory. For instance, our country may be named the departure or destination point of a particular shipment. Since under Ukrainian legislation a foreign company can own real estate in our country only through a subsidiary or affiliated company rather than exercise direct ownership, the insurance agreements covering immovable property can be denominated only in hryvnas. As to the cargo insurance policies or those under which movables are insured, they can be denominated in foreign currency as well.

In accordance with Insurance Act of Ukraine insurance indemnity shall be paid in the same currency in which the insurance premiums were paid. Besides, there is no daily limit for the indemnity transfer abroad. The only kind of delay can be associated with the necessity to buy sufficient amount of currency to cover the loss of the Insured.

Some insurance companies prefer to pay the indemnity to the residents of Ukraine or to permanent representations of non-resident company based in our country irrespective of who the Insured or Beneficiary is. Each and every insurance company has a right to follow its own corporate procedures regarding the conclusion of insurance agreements denominated in foreign currency. Therefore it is reasonable to inquire about these nuances before signing the insurance policy.


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