When it comes to international logistics, understanding the types of freight insurance is more than just good practice—it’s a necessity. While carriers are legally required to offer some level of liability, it’s often not enough to cover the true value of your goods. That’s why knowing the types of freight insurance is critical for shippers, importers, and exporters alike.In this guide, we’ll cover what freight insurance is, explore its major types, explain how it works, and help you choose the right coverage for your business.
1.What is Freight Insurance?
Freight insurance is a policy that protects cargo owners from financial loss due to damage, theft, or loss of goods during transportation. Whether you’re shipping by sea, air, rail, or truck, freight insurance ensures that your business doesn’t suffer when unexpected disruptions occur.
Unlike carrier liability, which offers limited compensation based on weight or item type, freight insurance offers value-based coverage. It’s especially important in cross-border shipping, where risk factors like weather, handling, and customs delay can increase significantly.
2.Why Is Freight Insurance Important?
Shipping is unpredictable. Goods can be lost in transit, damaged at ports, stolen during customs clearance, or affected by natural disasters. Even if you choose a reliable carrier, they are only liable for a fraction of your cargo’s value.
Here’s why freight insurance matters:
- Full recovery: Get reimbursed based on the invoice value, not just a weight-based formula.
- Peace of mind: Protect yourself against accidents, pilferage, and misrouting.
- Contract compliance: Some Incoterms require sellers or buyers to provide insurance.
- Financial stability: Avoid huge losses that could disrupt your supply chain or cash flow.
3.The Main Types of Freight Insurance
Choosing the right type of freight insurance depends on what you’re shipping, where it’s going, and how it’s transported. Below are the key categories:
All-Risk Cargo Insurance
The most comprehensive and popular form of coverage, all-risk insurance protects against nearly every type of loss or damage, unless specifically excluded.
Common inclusions:
- Natural disasters (storms, earthquakes)
- Accidental damage during handling
- Theft or pilferage
- Improper stowage or loading damage
- General average events at sea
Best for: High-value, fragile, or sensitive goods like electronics, luxury items, machinery.
Named Perils (Specific Risk) Insurance
This coverage only protects against risks explicitly listed in the policy. If a risk isn’t named, it’s not covered.
Typical named risks:
- Fire
- Collision
- Derailment
- Vessel sinking
- Theft (if stated)
Best for: Low-risk cargo or budget-conscious shippers who want some coverage without the full cost of all-risk policies.
Total Loss Insurance
Also known as “actual total loss” or “constructive total loss,” this type only covers cases where the entire shipment is destroyed or lost.
Important note: It won’t reimburse for partial damage or minor losses.
Best for: Bulk goods, commodities, or shipments where minor loss is not financially significant.
General Average Coverage
In maritime shipping, if a vessel sacrifices part of the cargo (e.g., jettisoned containers) to save the rest during an emergency, all cargo owners share the cost. General average coverage protects you from paying these shared costs if your cargo wasn’t damaged but someone else’s was.
Best for: All ocean freight shipments, especially FCL (full container load).
Freight Forwarder Insurance Add-ons
Some freight forwarders provide in-house or brokered insurance, offering flexible premiums based on shipment type and route. These may include:
- Door-to-door coverage
- Storage coverage while in warehouse
- Delayed delivery insurance
- Return shipment insurance
Best for: SMEs using forwarding services for end-to-end logistics.
4.Transport Mode-Specific Freight Insurance
Ocean Freight Insurance
- Covers risks like sinking, piracy, rough handling at ports
- General average and container loss are specific concerns
- Essential for both FCL and LCL shipping
Air Freight Insurance
- Focuses on loss or damage during rapid transit
- Also covers mishandling at airports and delays
- Premiums are slightly higher due to air cargo value and urgency
Road Freight Insurance
- Covers accidents, theft, hijacking, and improper loading/unloading
- Common for cross-border trucking in regions like EU or North America
Rail Freight Insurance
- Covers derailment, collision, weather issues, vandalism
- Important in China-Europe or North American intermodal shipping
5.What Freight Insurance Does Not Cover
Even all-risk policies have exclusions. Make sure you’re aware of these:
| Not Covered | Reason |
|---|---|
| Poor or improper packaging | Considered shipper’s responsibility |
| Inherent vice (perishable goods spoiling) | Natural degradation isn’t insurable |
| War, strikes, civil unrest | Requires additional coverage or rider |
| Customs seizure or regulatory fines | Legal risks outside insurer’s scope |
| Delay-related financial loss | Delays without damage aren’t covered |
| Employee dishonesty or fraud | Must be covered by separate fidelity bond |
6.Cost of Freight Insurance
Freight insurance is surprisingly affordable—often less than 1% of the total shipment value. Premiums vary depending on:
All-risk costs more than named-perils or total-loss policies
Routes with high theft or piracy cost more
Fragile, perishable, or high-value goods have higher premiums
Ocean is cheapest; air is highest
Conclusion
Selecting the correct type of freight insurance comes down to your cargo, your risk exposure, and your budget. For most businesses, all-risk insurance offers the best value and peace of mind, especially when shipping overseas.
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FAQs
Q1:Do I need freight insurance if the carrier already offers liability?
Yes. Carrier liability is limited by weight and shipping mode—and may only reimburse a small portion of your cargo’s actual value. Freight insurance offers full-value protection.
Q2:How much does freight insurance cost?
The cost typically ranges from 0.3% to 0.7% of the shipment’s commercial value. Premiums vary based on:
- Type of freight insurance
- Mode of transport
- Risk level of the route
- Value and nature of goods
Q3:Is freight insurance mandatory?
No, freight insurance is not legally required. However, many buyers or sellers include it in contracts or choose it for risk management. Some Incoterms (like CIF or CIP) require insurance coverage.
Q4:Which type of freight insurance is best for high-value goods?
All-risk insurance is the most suitable for high-value or fragile shipments. It offers comprehensive protection, covering nearly all risks unless explicitly excluded in the policy.
Q5:Can I buy freight insurance for a single shipment?
Yes. Many freight forwarders and insurance providers offer per-shipment coverage. This is ideal for companies that don’t ship frequently.