Cargo insurance, a form of inland marine insurance, is an important part of protecting the global supply chain. It pays the value of shipments, up to coverage limits, when shipments are lost, stolen, or damaged. Certain businesses that ship goods need cargo insurance, but those that ship infrequently can get coverage for single shipments. Small business owners typically insure cargo through the shipper. Cargo insurance cost is usually 10% of the value of the shipment.
What Is Freight & Cargo Insurance?
Freight insurance and cargo insurance are different names for the same type of insurance. Cargo insurance is a type of property coverage called inland marine insurance.
Who Needs Cargo Insurance?
Import/export companies, wholesalers, distributors, and manufacturers most likely need cargo insurance through a carrier.
Truckers who transport food, medicine, and other items daily need freight and cargo insurance to be protected against unexpected losses or damages incurred during shipping.
How Freight & Cargo Insurance Works
While carriers are liable for damage to your shipment, they usually only have to pay the amount of your loss. With this, courts often subtract the market value of the damaged goods from the market value they would have had if they arrived unscathed. In addition, carriers are not responsible for associated costs such as lost income.
Freight & Cargo Insurance Costs
To calculate the cost of cargo insurance, start with the value of the shipment. The policy rate will fluctuate depending on the carrier.
Premium = (Insured value × Policy rate) + 10%
Freight & Cargo Insurance Coverage for Single-shipment Costs
Many insurers have minimum premium requirements for stand-alone cargo insurance. This requirement is the amount you must pay, regardless of how often you ship cargo, and it’s one reason small business owners who either rarely ship items or ship small quantities get cargo insurance through a freight carrier, broker, or forwarder.
Other factors that impact freight insurance costs include:
The type of goods you ship can have a major impact on your cargo insurance costs. Shipping products that are inherently risky, valuable, perishable, or easy to steal usually increases cargo insurance costs.
Here are a few examples:
- Inherently risky: Flammable, corrosive, or explosive materials
- Valuable: Products with a high cost value, such as large machinery or major electronics
- Perishable: Items such as food or certain pharmaceuticals
- Easily stolen: Small or attractive items like smartphones, auto parts, or luxury items
Insurance applications almost always include questions about prior losses. Insurers use that information to determine how risky your business is to insure. They compare your losses to similar businesses’ and will adjust your premium to cover the cost of potential claims.
Most cargo insurance companies only consider freight-related losses, but some may look at other claims to determine your risk. This makes good risk management (like proper packaging) important because it can reduce the likelihood of claims.
Underwriters consider certain routes riskier than others—and sometimes, this is due to geography. Routes through areas that are mountainous, icy, remote, or otherwise treacherous can increase your rates.
Your rates may also increase if your shipment has to go through areas known for piracy or theft. Political instability in either the country of origin or the final destination can increase risk and your premium as well.
Freight & Cargo Insurance Coverage
Federal law requires trucking companies to carry some carrier liability insurance, but the minimum-required coverage may not be enough protection for your shipment. This is why agents often recommend purchasing additional cargo insurance. It typically covers external causes of loss and damage to your shipment.
It is best to find an insurance agent or provider that is experienced in managing cargo insurance as it will be able to address the following:
- Responsibility for insuring the goods: Whether the buyer or seller will be the one to insure the goods
- Point of transfer of the title to the goods: At what point the goods will be transferred from the seller to the buyer—which may depend on the kind of goods and the length of time it takes to ship them
- Insuring terms: The insuring terms as defined in their respective insurance policies
- Location of insurance company: Important if a United States importer asks the seller to provide insurance as the insurer may be located overseas, which could make claims processing more complicated
What Freight & Cargo Insurance Doesn’t Cover
Like any type of insurance, freight insurance doesn’t cover everything. For instance, cargo insurance doesn’t cover carrier liability. As the shipper, you don’t need liability coverage—the carrier is responsible for ensuring your shipment gets where it’s going. 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 your inadequate packing: If water seeps in and corrodes your shipment, the responsibility for the damage is on you.
- Damages caused by faulty goods: If the carrier can show your product has a flaw that caused the damage, then they are not responsible for it.
- Certain types of freight: Hazardous materials, certain electronics, or other types of cargo may be excluded, depending on your insurer.
- Certain modes of transportation: Some freight insurance may exclude trucking. Other insurance may exclude cargo ships, freight trains, or airplanes.
Freight & Cargo Insurance Coverage Types
Cargo insurance can be purchased for a single shipment as a standalone policy, or as part of a larger insurance program. Depending on your business, you may ship your goods domestically, internationally, or both. You may use trains, trucks, cargo ships, planes, or a combination of these. As a result, cargo insurance has a lot of variations, which fall within three main types of cargo insurance.
This is the most common type of cargo insurance. As the name implies, all-risk insurance covers a very broad category of risks. Oftentimes an all-risk policy will cover any external causes of damage, except for named perils outlined in the policy. However, all-risk cargo coverage does cover any damages caused by any event that are not specifically excluded in the policy.
Some common exclusions 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
Free from particular average (FPA) coverage is a clause that frees your insurer from covering losses in most situations. This is sometimes called a total loss only (TLO) policy because you only collect if you suffer a total loss. Generally, it only covers events beyond a person’s control.
For example, FPA coverage for marine insurance usually pays for total losses stemming from:
- Stranding
- Burning
- Sinking
- Collision
- Errors in vessel management
- Boiler bursts
- Defects in hull or machinery
The final common type of cargo insurance is general average coverage, which is specific to ocean marine coverage. When you transport goods by sea, you share responsibility for the boat and all its cargo with the shipowner and other cargo owners. Essentially, if the boat or another person’s cargo is damaged to save the ship, you share in that loss with the rest of the people involved.
You 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 shipowner won’t even release your cargo until you’ve paid your portion. With general average coverage, your portion is paid by the insurer.
Best Freight & Cargo Insurance Companies
- Tivly: Best for finding freight insurance quickly
- Travelers: Best for customizing inland marine insurance
- Roanoke: Best for transporting items across borders regularly
- CargoCover: Best for businesses that ship overseas
- The Hartford: Best for businesses that want additional coverages
Tivly: Best for Finding Freight Insurance Quickly
Travelers: Best for Customizing Inland Marine Insurance
Roanoke Insurance Group: Best for Transporting Items Across Borders Regularly
CargoCover: Best for Businesses That Ship Overseas
The Hartford: Best for Businesses That Want Additional Coverages
Bottom Line
Business owners who ship only occasionally or ship low quantities of products can usually get the best deal on cargo insurance by working with their freight broker. However, manufacturers, wholesalers, importers, and exporters may need their own cargo insurance to be fully protected.
Tivly is a commercial insurance marketplace that helps business owners connect with the provider that fits their business needs. It offers a large variety of business policies, including cargo insurance. To get a quote, fill out a quick contact request form. That same day, a representative will contact you to match you with a provider.
