When you’re shipping goods—whether by sea, air, rail, or truck—many risks can arise: damage, theft, loss, or delay. Freight insurance coverage is a way to protect your cargo and your business from unexpected financial losses. But what exactly does it cover? What’s excluded? And is it really necessary for every shipment?
This guide explains what freight insurance coverage is, the types available, what’s typically covered (and not covered), and how to choose the right policy for your shipments.
1.What Is Freight Insurance?
Freight insurance, also known as cargo insurance, is a type of coverage that protects the shipper or consignee against financial loss or damage to goods during transit. Unlike carrier liability (which is limited), freight insurance offers full or partial reimbursement based on the insured value of the goods.
2.Types of Freight Insurance Coverage
- Provides the most comprehensive protection.
- Covers damage or loss due to external factors like theft, water damage, rough handling, fire, and more.
- Best for new, packaged goods with proper documentation.
- Covers only specific risks named in the policy (e.g., fire, collision, theft).
- Less expensive, but less comprehensive.
- Applies only if the entire shipment is lost or destroyed.
- Often used for bulk or low-value shipments.
3.Why Freight Insurance Is Important
Carriers typically reimburse based on weight or volume, not actual value.
It reduces financial exposure from unexpected shipping incidents.
Many international trade contracts require insurance as part of Incoterms.
Electronics, machinery, and fashion products often require full protection.
4.What Freight Insurance Typically Covers
| Covered Events | Not Covered Events |
|---|---|
| Theft | Poor packaging or inherent product defects |
| Fire or explosion | Delay without physical loss or damage |
| Natural disasters (storms, etc.) | War or political unrest (unless specified) |
| Vessel sinking | Loss due to negligence of the shipper |
| Accidental damage in transit | Ordinary leakage or wear and tear |
5.What’s Excluded in a Cargo Insurance Policy?
Despite its comprehensive nature, freight insurance comes with several exclusions that shippers must be aware of. These are standard in most policies:
Common Exclusions:
- Inherent Vice: Natural characteristics of goods that make them prone to deterioration (e.g., fruit spoiling).
- Improper Packaging: If damage occurs due to poor or insufficient packaging, claims may be denied.
- Delay Alone: Losses due solely to delay, without physical damage or loss, are not covered.
- Customs Rejection: If cargo is confiscated or rejected by customs authorities.
- Loss Due to War or Strikes: Unless war risk or strike coverage is specifically added to the policy.
- Voluntary Parting: If the insured willingly hands over goods under fraudulent instruction.
- Illegal Goods: Items prohibited by law or trade regulations are not insurable.
- Wear and Tear: Gradual damage, rust, oxidation, or contamination under normal conditions.
6.Cost of Freight Insurance
The premium is usually calculated as a percentage of the insured value, which includes:
- The value of the goods
- Freight cost
- A margin for profit
7.How to Buy Freight Insurance
- Through a freight forwarder: Many offer insurance as an add-on.
- Directly from an insurance provider: Best for frequent shippers with higher volumes.
- Via shipping platforms or online portals: Ideal for occasional or e-commerce shipments.
8.Tips for Choosing the Right Coverage
- Always read the terms and exclusions.
- Ensure the insured value is correct.
- Choose a policy that matches your risk tolerance and cargo type.
- Work with experienced freight forwarders or insurance brokers.
Final Thoughts
Freight insurance is a smart investment that protects your cargo and your business reputation. Accidents happen, but with the right coverage, you’re prepared for the unexpected. Whether you ship occasionally or run a large-scale operation, make freight insurance a standard part of your shipping process.
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FAQ:
Q1:Is freight insurance mandatory?
No, but it’s highly recommended, especially for international or high-value shipments.
Q2:Who pays for freight insurance?
It depends on the Incoterms agreed between buyer and seller (e.g., CIF requires the seller to insure).
Q3:Does freight insurance cover delays?
No. Most policies exclude coverage for delivery delays unless physical loss or damage occurs.