What Is Cargo Insurance and How Much Does Cargo Insurance Cost?
Goods will get lost, stolen, or damaged in transit. That is the unchanging reality of trading. Even with advanced security measures, package tracking, and modern methods of transport, it is simply unavoidable and is something every business owner should account for. While there is no way to prevent the loss of cargo, there is a way to safeguard against it – cargo insurance.
And that is precisely what this article will deal with. We will explain what cargo insurance is and its benefits, add a short cost-benefit analysis of taking out cargo insurance, and discuss what you should look for in a cargo insurance provider.
What Is Cargo Insurance?
Cargo insurance is the service that you pay your insurance provider for that is used to protect the value of your goods against damage, theft, or loss during transit. All carriers have carrier liability – a minimal amount of insurance that they provide.
However, carrier liability is often very limited and does not cover a portion of the value of expensive goods. Further, carrier liability typically does not cover instances where your goods were damaged due to fire, accidents at sea, inadequate packing, natural disasters/force majeure, etc.
And these are the most common causes of lost or damaged goods. Thus, basic carrier liability neither covers the value of more expensive items, nor does it cover all instances where your goods are lost or damaged. Consequently, shippers get cargo insurance to cover their goods in transit.
The Difference Between Freight and Cargo Insurance
Cargo insurance and freight insurance are sometimes used interchangeably, so it is easy to mix them up. Both are insurance policies that protect goods in transit, but who is protected is the difference.
Generally, cargo insurance protects the sender of a package. So, if you run an e-commerce business, cargo insurance protects you when you send your items to clients. On the other hand, freight insurance protects the freight forwarder or carrier from the loss of a shipment.
Consequently, if you see freight insurance on your quote, that does not mean you are protected. While it is possible that freight insurance was used instead of cargo insurance and you are, indeed, protected, double-check with your carrier who the insurance covers specifically.
Is Cargo Insurance Truly Necessary?
We have answered – what is cargo insurance? Now we should answer – is it necessary? The issue is that there is no universal answer that applies to every shipper. It depends on your specific situation, so you need to judge whether being reimbursed for potentially lost items outweighs paying for cargo insurance.
However, do be aware that it is rather common for cargo to be damaged, lost, or stolen in transit. The World Shipping Council has been tracking how much cargo is lost at sea since 2011, and their data shows that 1,382 containers are lost at sea annually on average. And that number does not include land or air transport.
Combine that with the FBI’s data that cargo theft causes approximately $140,000,000 in damages per year. On top of that, account for the possibility of your items being damaged during transport or handling and you get a clear picture of why some people believe cargo insurance to be a necessity.
If we were to talk in generalities, our advice would be that business owners that deliver to customers should pay for cargo insurance if they are shipping any significant amount of goods. Similarly, private shippers that are sending high-value items should also get it.
Occasional shippers sending items that are low in value should probably forego shipping insurance and avoid the additional cost. The items will either be covered by carrier liability or it would not cost too much to replace them.
The Benefits of Cargo Insurance
The main benefit of cargo insurance is plain and obvious – you can get reimbursed for the value of your goods. But there is one more benefit that is rarely considered and it pertains to business owners – it safeguards your reputation among customers and builds brand loyalty.
When a customer orders something from you and it gets lost in transit, who is going to be blamed? Even though it is no fault of your own, the customer will expect you to take responsibility. And the claims process and proving liability can be long and arduous if you do not have cargo insurance.
By the time the process is over and you manage to reimburse your customer, negative reviews and bad word of mouth are starting to spread. One instance likely won’t affect you much, but if you deliver in large quantities, it starts to stack up. When you have cargo insurance, you can quickly and easily reimburse the customer and prevent your reputation from taking a hit.
What to Look for in a Cargo Insurance Provider
There are many cargo insurance companies that will offer you their services, but you should shop around to find the insurance provider that is best for you. Look for:
- Flexible policies; One-size-fits-all is not the best approach to cargo insurance. Make sure that your provider’s policies are appropriate for your specific needs. For instance, if you regularly ship goods worth over $100,000, then an insurance policy that covers only up to $100,000 is not for you.
- Good rates; The price of cargo insurance depends on multiple factors (it will be discussed below) and prices can vary significantly. Try to find a good balance of quality and cost.
- Access to insurance representatives; You take out cargo insurance to get reimbursed for lost, damaged, or stolen goods, but you do not want the claims process to take months. Look for service providers you will have an open line of communication with and that are willing to provide a dedicated insurance representative to make the process as efficient as possible.
How Is the Price of Cargo Insurance Calculated?
Each insurance provider will have different rates and use different variables to calculate the cost of cargo insurance, but the three main factors that will determine the price are:
- Your history – insurance premiums may rise based on prior losses you had.
- The type of goods being transported - e.g., hazardous materials are more costly to insure than lumber.
- The maximum cargo insurance coverage - a common insurance limit is $100,000. If you need a higher limit, you will possibly need to pay more.
Are You Looking to Protect Yourself from All Risks?
Unival Logistics can be your logistics partner. We provide end-to-end logistic services and will make sure your goods are delivered safely via the fastest routes. You will be provided with shipping insurance of up to $150,000 for domestic shipments and $100,000 for international shipments.
Unival Logistics has over 18 years of experience in the transportation and insurance industry. Contact us and allow us to get your goods where they need to be secure and undamaged. And if an insurance claim needs to be filled, you will be provided with a dedicated insurance agent that will make sure you are reimbursed as quickly as possible.
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