Final answer:
Increased Value and Excess Liability (IVEL) clauses provide extra coverage in addition to the primary insurance when losses exceed the original policy limits, ensuring financial protection for policyholders for the same losses already covered.
Step-by-step explanation:
The purpose of Increased Value and Excess Liability (IVEL) clauses is to provide extra coverage for the same losses covered by an underlying policy. This mechanism is designed to offer an additional layer of financial protection to policyholders against losses that exceed the limits of their primary insurance coverages, such as in cases of significant property damage or liability claims. IVEL clauses are commonly used in the shipping industry, where the value of a vessel may increase over time, possibly exceeding the original policy limits.
Their function is critical in circumstances where the potential for loss may have escalated beyond the expectations at the time the policy was purchased. This is mainly due to the fact that the value of assets, like ships, can fluctuate due to market conditions or enhancements made to the vessel. Thus, these clauses ensure that the coverage keeps pace with the current value of the asset or the potential for liability, thereby safeguarding the financial interests of the policyholder.