Definition of Letter of Undertaking in P&I Insurance ~ Insurance Academy

Letter of Undertaking (LOU) is a guarantee letter from one party to another without being based on a contract. This letter was issued by the P&I Club.

LOU is useful as a guarantee (security) to Members wherever the ship is, so that the member ship can be released from detention efforts until the claim settlement process.

Some of the considerations determined by the P&I Club in issuing the Letter of Undertaking (LOU) include:

1. P&I Club may provide a guarantee (LOU) or prepay in connection with the terms of risk coverage covered by the P&I Policy
2. P&I Club may request a counter guarantee from the Member in relation to claims for payment
3. Member pays a certain amount of Deductible to P&I Club according to the provisions of the Policy
4. P&I Club is entitled to receive a commission on the issuance of LOU for the benefit of the Member which is usually around 1% per year

In this letter there is usually an estimate of replacement/repair as a guide for the aggrieved party. The payment model is reimbursement basis.

If there is no such letter, there needs to be a bank guarantee whose value is not small.