Freight & Cargo Insurance Policy
Cost, Coverage, & Providers:
“For all shipping of goods, it is recommended the buyer to obtain cargo insurance.”
Cargo insurance pays the value of shipments up to coverage limits (minus the deductible) and makes sure those valuable goods are protected in case of unexpected damage or losses.
What is Freight & Cargo Insurance:
Freight insurance covers shipped goods when they’re transported via land, sea, or air. It pays the value of lost or damaged shipments up to coverage limits, minus the deductible.
The seller, the buyer, or even the shipping company can purchase policies. However, usually, the party with the greatest financial investment (the buyer) gets freight insurance coverage.
Cargo insurance is a type of property coverage called marine insurance. There are two main types of marine coverage, ocean marine insurance for shipments by sea, and inland marine insurance, for shipments by land. Some freight insurance coverage can include all modes of transportation.
What Freight & Cargo Insurance Covers:
In the US, Federal law requires trucking company carriers to carry some carrier liability insurance, but the minimum requirement may not be enough protection for any shipment. Moreover, other carriers over sea don’t have the same requirement. This is why we often recommend additional cargo insurance. It typically covers external causes of loss and damage to your shipment.
Common triggers for cargo insurance include:
· Natural disaster
· Vehicle accidents
· Acts of war
· Cargo abandonment
· Customs rejection
When a covered event causes damage to the shipment, cargo insurance pays up to the amount insured minus the deductible.
What Freight & Cargo Insurance Doesn’t Cover:
Cargo insurance has a few important limitations. For instance, it doesn’t cover carrier liability. Shippers don’t need liability coverage. The carrier has the responsibility of making sure the shipment gets where it’s going. But if the Buyer is the carrier, it is responsible for transporting the goods, and then they need carrier liability insurance.
Additionally, freight and cargo insurance policies have exclusions. These are policy provisions that eliminate coverage for certain perils.
Individual freight insurance policies typically exclude:
· Damages caused by inadequate packing – If water seeps in and corrodes the shipment, the responsibility for the damage is on you.
· Damages caused by faulty goods – If the carrier can show the product has a flaw that caused the damage, they are not responsible.
· Certain types of freight – Certain electronics or other types of cargo may be excluded, depending on your insurer.
· Certain modes of transportation – Some freight insurance may exclude trucking. Others may exclude cargo ships, freight trains, or airplanes.
The insurance industry does not have a standard cargo insurance form, so exclusions and inclusions vary widely.
Freight & Cargo Insurance Costs:
Cargo insurance costs are usually a percentage of the value of the shipment or the value of the shipment plus shipping charges. Most freight brokers sell coverage for 60% of the shipment value. This ends up costing between $50 and $100 on small items like parts for partial loads.
Freight & Cargo Insurance Coverage Single Shipment Costs:
Many providers have minimum premium requirements on stand-alone cargo insurance. That’s the amount you have to pay, no matter what, and it’s one reason why small quantities get cargo insurance through the freight carrier, broker, or forwarder.
The insurance rates for a single shipment can cost from 3% up to 6%. The shipping costs have a minor impact on the premium. However, other factors can impact freight insurance costs.
Items Being Shipped:
The type of goods that are shipped can have a major impact on cargo insurance costs. Shipping products that are inherently risky, valuable, or easy to steal usually increases cargo insurance costs.
Here are a few examples:
· Inherently risky, such as materials or parts.
· Valuable, such as large machinery or major electronics.
· Easily stolen, such as small or attractive items, like smartphones, or luxury items.
The Loss History:
Insurance applications almost always include questions about prior losses. Insurers use that information to determine how risky is the product to insure and the risk to the final destination. They compare losses to similar businesses and Items and increase your premium to cover potential claims costs.
Most cargo insurance providers only consider freight-related losses, but some may look at other claims to determine the risk. This makes good risk management, like proper packaging, important because it can reduce the likelihood of claims.
Underwriters consider some routes riskier than others. Sometimes this is due to geography. Routes through areas that are mountainous, icy, remote, or otherwise treacherous can increase the rates. The rates may also increase if the shipment has to go through areas known for piracy or theft. Political instability in either the country of origin or the final destination can also increase risk and your premium.
Freight & Cargo Insurance Coverage Types:
Depending on the product, or shipping the good domestically, internationally, or both. If the product needs to use trains, trucks, cargo ships, planes, or a combination of all of these, there are many variations to cover. As a result, cargo insurance has many variations, too.
These are a few coverage types that need to be identified when looking for cargo insurance.
Land Cargo Insurance:
This is freight insurance coverage for land shipments, most often via trucks and small utility vehicles. This coverage is often limited to vehicle accidents but may also pay for theft and other damage. Always ask if the policy includes theft coverage if the shipment needs to be stored in a truck overnight.
Land cargo insurance only applies within the boundaries of a given country. The coverage is for domestic transport only. If the shipments across national borders, it will need additional coverage.
Marine Cargo Insurance:
Most marine cargo insurance covers sea and air shipments, but some policies also cover land transport. It usually pays for damage caused by bad weather, loading and unloading, piracy, and other related risks.
Marine cargo insurance is not limited to a single nation. This makes it the appropriate coverage for international shippers.
Regularly ship of goods (or large order of products) may need open coverage cargo insurance. It’s a type of marine insurance that covers multiple shipments made during the life of the policy. The policyholder periodically reports a group of shipments to the insurer, and these reported shipments are covered.
The policyholder also needs to provide the insurer with details about the product being shipped and its destination. Failure to provide this information can void the policy.
Also called a voyage or specific cargo policy, single coverage is the opposite of open coverage. It’s a marine policy that insures one-time shipments. This policy makes the most sense for small shipments that ship periodically.
All-Risk Cargo Insurance:
All-risk cargo insurance offers the broadest coverage for shipments. It ensures the shipment against external causes of damage except those outlined in the policy.
Some common exclusion in all-risk freight insurance coverage are:
· Improper packing
· Abandonment of cargo
· Rejection of goods by customs
· Employee dishonesty
· Loss due to the nature of the product
· Loss due to delay
With all-risk coverage, the insurer pays unless the loss results from one of the perils listed in your policy.
Free from Particular Average Coverage:
Free from particular average (FPA) coverage is a clause that frees your insurer from covering losses in most situations. Generally, it covers events that are beyond a person’s control.
For example, free from particular average coverage for marine insurance usually pays for total losses stemming from:
· Errors in vessel management
· Boiler bursts
· Defects in hull or machinery
Sometimes called a total loss only policy because the Buyer only collects if they suffer a total loss.
General Average Coverage:
When transporting goods by sea, the responsibility is a share for the boat and all its cargo with the ship-owner and other cargo owners essentially, if the boat or another person’s cargo is damaged to save the ship, the Buyer share in that loss with the rest of the people involved.
The buyer may be responsible for a general average if the captain needs to abandon some cargo after the ship runs aground or is caught in a storm. Sometimes the ship-owner won’t even release the cargo until the Buyer paid their portion. With general average coverage, the insurer pays this portion.
Most marine cargo insurance includes a warehouse-to-warehouse clause. It ensures the shipment is cover from the moment it leaves the seller’s warehouse until it reaches the destination warehouse. Without it, the Buyer's cargo is only protected when it’s onboard the cargo ship.
Warehouse-to-warehouse coverage may not be in effect in some situations. For instance, it doesn’t cover cargo if either the shipper or the consignee picks it up. The coverage may also be impacted by sales terms, like if the buyer takes ownership before the cargo reaches the final destination warehouse.
Contingency Cargo Insurance:
Contingency cargo is a type of freight brokers' insurance. Brokers and expeditors buy contingent cargo policies because they can cover lawsuits brought by business owners who use their service. It covers common causes of loss, like theft and damage in transit. However, contingency cargo insurance is only triggered if the shipping company refuses to pay a claim.
Here’s how it works. Say you use a freight broker to ship items overseas, and they’re damaged during transit. The shipping company refuses the claim, so the Buyer turns to the broker for reimbursement. If they have contingent cargo insurance, they may be able to cover the costs.
The experts that we work with will take all of the insurance requirements into consideration when working with top insurers to get complete coverage. Inform the experts of any specific risks, and they will do the legwork to find the right policy for the proposed shipment.
Asking questions makes it more likely that the Buyer can get sufficient freight insurance coverage.
Get Covered from the Moment You Take Possession:
Want to make sure the cargo and freight insurance policy covers the goods from the moment the owner takes ownership. Review the terms of sale between the Seller and Buyer to know at what point the shipment belongs to the Buyer and place the appropriate cargo insurance on the product.
Pick Open Coverage for Regular Shipments:
Large order or regular shipping of products or materials wants to consider open coverage. This is a type of policy that covers all cargo shipped while the policy is active. Report shipments to the insurer, and they are automatically covered as long as they occur on or after the policy inception date and before its termination.
Consider Getting Insurance Through Your Freight Broker
The easiest and most common solution for occasional and low-volume shippers is to get cargo insurance coverage through the freight expeditor or broker. They usually get the best deals for small shippers, and they have experience working the freight and cargo insurers.
Where to Get Freight & Cargo Insurance:
Independent brokers ready to assist with shipping insurance needs!
Importer/exporters, all-risk cargo insurance for international shipping
The broker can assist and specializes in cargo-related policies.
Beginning to ship internationally.
Apply online and download secure insurance certificates
If you have any questions about this Freight & Cargo Insurance document, please contact us.
This document was last updated on Jun 2021