The mortgagee requires an insurance policy (MII) for the loan offered to the ship owner. This is set up through the Letter of Undertaking on the Mortgagee in the Hull Insurance Company's insurance policy. In the event of an accident/damage that is not covered by hull insurance, Mortgagee will require separate insurance. MII is designed to cover these risks.

In the loan agreement between the owner of the vessel and the mortgage, it is stated that in the event of a total loss of the mortgage or if the claim exceeds the set value, the owner of the vessel is entitled to receive the insurance from the Hull insurance and the Increased Value insurance. This protects the mortgage against the amount of the loan issued at any given time.

Under the Notice of Assignment, the insurance company of Hull Insurance and Increased Value Insurance issues a Letter of Undertaking in favor of the mortgage in accordance with the Loss Payable Clause agreed between the parties.
The insurer of Hull Insurance and Increased Value Insurance will not pay the insurance unless it is the damage it compensates. In general, this can happen if you breach the Warranty or if the damage is caused by negligence. In such a case, there will be no insurance payment from the insurer, and the mortgage will face a loss.

With MII, you can protect yourself by purchasing a separate product in these cases.

Institute Mortgagees Clauses – Hulls