Insurance in Time Charter (TC) and Voyage Charter: Who Covers What A practical guide for traders, charterers and ship operators
Introduction
In international shipping, the allocation of insurance risk between shipowners and charterers is one of the most important commercial and legal issues. Whether the vessel is fixed on a Time Charter (TC) or a Voyage Charter, the parties must clearly understand who is responsible for which insurance. Incorrect assumptions can leave a company exposed to multi-million-dollar claims for hull damage, cargo loss, pollution or contractual liabilities.
This article explains the standard insurance structure under both charter types, the key covers involved, the practical responsibilities of each party, and the special position of high-risk areas such as the Strait of Hormuz, Suez/Red Sea routes and similar zones.
Main Types of Marine Insurance
| Insurance Type | What It Covers | Typical Purchaser |
|---|---|---|
| Hull & Machinery (H&M) | Physical damage to the vessel, machinery breakdown, total loss, salvage and 3/4ths collision liability | Shipowner |
| Protection & Indemnity (P&I) – Owner’s | Third-party liabilities: cargo claims, pollution, crew injury/death, wreck removal, remaining 1/4 collision liability, fines | Shipowner (via P&I Club) |
| Charterers’ Liability Insurance (Charterers’ P&I) | Charterer’s contractual and operational liabilities: damage to the chartered vessel, cargo claims, stevedore damage, unsafe port/berth claims, pollution from bunkers or cargo, indemnities under the charter party | Charterer |
| Cargo Insurance | Physical loss or damage to the cargo itself | Cargo owner / shipper / buyer (as per Incoterms) |
| War Risks | War, civil war, hostilities, terrorism, piracy-related risks and related perils (normally excluded from standard H&M and P&I) | Usually Shipowner (with additional premiums frequently for Charterer’s account) |
Insurance Responsibilities by Charter Type
Voyage Charter
Under a voyage charter, the shipowner retains full operational control of the vessel and is responsible for providing a seaworthy ship, crew, maintenance and all vessel-related insurance.
- Shipowner pays for and maintains H&M and Owner’s P&I.
- Charterer pays freight and supplies the cargo. The charterer’s exposure is more limited but still real.
- Recommended cover for the charterer: Charterers’ Liability Insurance (particularly for safe port warranties, stevedore damage under FIO/FIOS terms, and cargo-related indemnities).
- Cargo insurance remains the responsibility of the cargo interests according to the underlying sale contract.
Time Charter (TC)
In a time charter the shipowner still provides the crewed vessel and remains responsible for technical management and vessel insurance. However, the charterer gains commercial control (employment orders, choice of ports and cargoes, supply of bunkers).
- Shipowner continues to arrange and pay for H&M and Owner’s P&I. Standard forms such as NYPE expressly state that the owners shall provide and pay for the insurances of the vessel.
- Charterer has significantly higher risk exposure and almost always requires Charterers’ Liability Insurance.
- Typical risks covered under Charterers’ Liability include damage to the vessel caused by the charterer’s operations, cargo claims (especially under the Inter-Club Agreement), pollution from bunkers or cargo, and contractual indemnities.
Key point: The Owner’s P&I Club does not automatically protect the charterer. Any liability that the charterer owes to the owner or to third parties must be covered by the charterer’s own insurance.
Special Note: High-Risk Areas (Strait of Hormuz, Suez / Red Sea, Gulf of Aden, Persian Gulf, etc.)
Standard H&M and P&I policies exclude war risks. Separate War Risks Insurance is required. When a vessel enters an area listed by the Joint War Committee (JWC) as a high-risk or additional premium area, underwriters charge an Additional Premium (AP / AWRP).
Areas that frequently attract these additional premiums include:
- Strait of Hormuz and the wider Persian/Arabian Gulf
- Red Sea, Gulf of Aden and approaches to the Suez Canal
- Other zones designated from time to time due to conflict, piracy or political violence
Who arranges and who pays?
- The Shipowner arranges the war risks cover (annual policy + voyage-specific additional premium when entering a listed area).
- Under the widely used BIMCO clauses — CONWARTIME (Time Charter) and VOYWAR (Voyage Charter) — the Charterer is generally required to reimburse the Owner for:
- Additional war risk premiums
- Costs of any additional Kidnap & Ransom (K&R) insurance obtained for that voyage
- Related crew war bonuses (in many cases)
The latest versions of these clauses (including the 2025 updates) require greater transparency: Owners must notify Charterers of the costs as early as practicable, demonstrate reasonable endeavours to obtain appropriate cover, and credit any applicable discounts or no-claims benefits.
If the charter party does not incorporate CONWARTIME / VOYWAR or an equivalent provision, the allocation of additional premiums may be less clear and should be expressly agreed.
Cargo side: Cargo owners may face separate War Risk Surcharges (WRS) from carriers. These surcharges recover the carrier’s extra costs and do not provide insurance for the cargo. Cargo interests should arrange their own cargo war risk insurance if required under the sale contract or for their own protection.
In periods of elevated tension (as seen repeatedly in the Strait of Hormuz and Red Sea), additional premiums can rise sharply — sometimes from a fraction of one percent of hull value to several percent per transit — significantly affecting voyage economics.
Summary Comparison
| Risk / Cover | Voyage Charter | Time Charter |
|---|---|---|
| H&M Insurance | Shipowner | Shipowner |
| Owner’s P&I | Shipowner | Shipowner |
| Charterers’ Liability | Recommended | Standard / Strongly recommended |
| Cargo Insurance | Cargo interests | Cargo interests |
| Base War Risks cover | Shipowner | Shipowner |
| Additional War Risk Premiums (Hormuz, Suez/Red Sea, etc.) | Usually Charterer (under VOYWAR or equivalent) | Usually Charterer (under CONWARTIME or equivalent) |
| Damage to vessel caused by charterer’s orders or operations | Charterer’s liability | Charterer’s liability |
Practical Recommendations
- Always review the specific charter party wording (NYPE, Gencon, Shelltime, BPTime, etc.) and confirm whether CONWARTIME / VOYWAR (or equivalent) is incorporated.
- Charterers should obtain Charterers’ Liability Insurance before the charter period begins. Cover is normally available through International Group P&I Clubs or specialist marine underwriters.
- For high-risk areas, clarify in advance who will bear additional war risk premiums, K&R costs and crew bonuses. Request early notification and supporting documentation from Owners.
- Cargo insurance (including any war risk element) should be arranged in accordance with the sale contract (Incoterms) and should not be confused with P&I or Charterers’ Liability cover.
- Maintain close coordination between owner, charterer and their respective insurers, especially when vessels are ordered into or through listed areas.
Conclusion
In both Time Charter and Voyage Charter, the shipowner insures the vessel (H&M and Owner’s P&I). The charterer must insure their own liabilities. The degree of operational control under a Time Charter makes Charterers’ Liability Insurance particularly important, while voyage charterers still face meaningful exposure that should not be left uninsured.
For high-risk areas such as the Strait of Hormuz, Suez/Red Sea routes and similar zones, additional war risk premiums are a major commercial factor. Under standard BIMCO war risk clauses, these extra costs are generally for the Charterer’s account. Clear contractual wording and timely communication are essential to avoid disputes and unexpected costs.
Proper understanding and arrangement of these covers form an essential part of professional risk management in modern shipping and commodity trading.
