Types of Cargo Insurance: A Comprehensive Guide

Types of cargo insurance are as diverse as the cargo they protect. Each carries its own set of coverages, exclusions, and costs. It’s a complex web that can trip up even the most seasoned businessperson. One small oversight can spell disaster, while unnecessary coverage may weigh heavily on the bottom line. Navigating this landscape is no simple task, but with a little guidance, you can be confident in your choice of coverage.

The International Trade Administration (ITA) asserts the importance of cargo insurance for businesses involved in shipping. Different types, such as All Risk, Named Perils, and Total Loss Only policies, safeguard goods in transit. It's crucial to choose coverage based on the value of the goods and the potential risks involved.

Ready for a deep dive on the topic of cargo insurance? Join us as we take the plunge.

Types of Cargo Insurance Coverage

Delving into the world of cargo insurance, you'll come across different tiers of coverage, each offering various levels of protection.

The four most common cargo insurance policies are:

• All Risk Coverage
• Total Loss Only
• Named/Specific Perils
• Contingent

 Let's explore each in more detail.

All Risk/Open Perils Coverage

All Risk insurance offers the most comprehensive coverage. It protects against all physical loss or damage from external causes, making it the ideal choice for high-value, delicate, or perishable items. 

Some examples of situations covered by All Risk insurance include:

• Accidental collisions
• Natural disasters such as hurricanes and hail storms
• Piracy
• Damage due to mishandling 
• Damage caused by improper storage

Given its comprehensive nature, All Risk cargo insurance is essential for scenarios such as:

• Shipping High-Value Goods: This includes commodities such as luxury cars, high-end electronics, or precious artwork.
• Transporting Fragile Items: Avoid costly damage to delicate or fragile goods like glass products, ceramics, or musical instruments.
• Shipping Perishable Goods: A slight delay or temperature change can lead to spoilage, so comprehensive coverage is a smart choice for businesses shipping perishable goods like seafood, fruits, or flowers.
• Frequent Shipping Over Long Distances: Businesses shipping frequently tend to go long distances. This may take them through regions with unstable climates or a high risk of piracy, situations that benefit from All Risk insurance. .
• Goods With High Replacement Costs: Save significant expense in the event of loss or damage by investing in All Risk insurance for goods with high replacement or repair costs, such as specialized machinery or custom-made items.

Considering the wide range of incidents to which it applies, All Risk insurance offers great peace of mind for shippers.

Total Loss Only Policies

Total Loss Only policies are a more cost-effective form of cargo insurance. They protect you from situations where you might lose the entire shipment, but not from minor damages. 

This policy type might be the right choice in these situations:

• Low-Value Goods: If your cargo is of relatively low value, covering the total loss would be more sensible than insuring against minor damages.
• Resilient Commodities: Some goods are hardy and unlikely to suffer from minor damage during transit. Things like metal parts, certain machinery, or raw materials may be good candidates. 
• Budget Constraints: If your budget is tight, a Total Loss Only policy offers a balance between cost and coverage. It ensures you won't face a catastrophic loss, even if it doesn't cover every issue.
• Low-Risk Routes: If your cargo travels along well-established, safe routes, this coverage might be all you need. Risks of total loss are significantly lower when your cargo isn't traveling through high-risk areas or extreme weather conditions.

Essentially, the less risk involved en route, the more likely it is that a Total Loss Only policy will be your best choice.

Learn about the air cargo insurance industry by reading our article that discusses various statistics on this topic.

Named Perils and Specific Perils Coverage

Named Perils and Specific Perils coverages are distinct, but similar, forms of cargo insurance. Unlike an All Risk policy, this type of cargo insurance covers risks explicitly listed in the policy, not comprehensive protection. It's a more targeted form of coverage and can be suitable in specific circumstances.

Named Perils Coverage

Named Perils coverage is ideal when:

• You're Aware of Specific Risks: If you know that your cargo will be exposed to particular risks, such as rough handling at a certain port, or adverse weather on a certain route.  Named Perils coverage allows you to insure against those specific dangers.
• You Need a Customized Policy: If you have unique needs or face risks that aren't typically covered by standard policies, Named Perils coverage allows you to customize your insurance to your specific situation.
• Cost Management: If you're looking to manage costs and only want to pay to cover certain risks, Named Perils coverage can be a cost-effective choice.

Specific Perils Coverage

On the other hand, Specific Perils coverage might be the right choice if:

• You Have High-Value Cargo: If you're shipping expensive goods, Specific Perils coverage can provide added peace of mind by covering unique risks that could seriously impact your bottom line.
• You're Shipping to High-Risk Locations: If your cargo is headed to an area known for certain risks — such as piracy or political instability — Specific Perils coverage can help protect against those unique challenges.

Remember, as with any insurance policy, the goal is to balance coverage and cost.

Contingent Insurance Policies

A contingent insurance policy offers coverage when the primary policy does not respond or is not in place. They act as a safety net in situations where coverage gaps might occur. 

Here are situations where contingent coverage could be an ideal choice:

• International Shipping: For businesses involved in global shipping, where laws and regulations can vary greatly from one country to another, a contingent policy provides extra protection.
• Unreliable Carriers: If you're dealing with new or unreliable carriers and doubt their insurance coverage adequacy, having a contingent policy could safeguard you against unforeseen losses.
• High-Risk Cargo: If your cargo is particularly valuable or susceptible to damage, a contingent policy provides an extra layer of security beyond the primary coverage.
• Complex Supply Chains: If your goods are passing through multiple handlers or transport modes, the risk of miscommunication or misunderstanding about who is responsible for insurance at each stage is higher. Contingent insurance can cover these gaps.

A contingent insurance policy isn't for every shipment, but for those with higher risk or complexity, it provides valuable peace of mind.

Cargo Insurance vs Freight Insurance

There are many interchangeable terms for international cargo insurance. Among these terms are overseas cargo insurance and overseas cargo shipping insurance. However, one term that is sometimes used interchangeably is actually a different insurance type, and that’s international freight insurance.

While cargo insurance protects the goods themselves during transit, freight insurance typically covers the cost of transporting goods.

To understand the distinct roles that international freight insurance and international cargo insurance play, let's consider two hypothetical scenarios:

1. International Freight Insurance in Practice

FreightMovers International is a logistics company that transports goods from one place to another. If a shipment is delayed due to a storm, the company can claim insurance to cover the additional costs, such as fuel, overtime, and penalties.

2. International Cargo Insurance in Practice

TechCo is a company that owns a shipment of electronics. During a storm, a portion of the shipment gets damaged due to water ingress in the cargo hold. TechCo can file a claim with their international cargo insurance provider to recover the value of the damaged electronics. 

International cargo insurance companies, such as ourselves, offer insurance for the cargo itself. Freight insurance falls under the umbrella of freight charges, which are a separate aspect of logistics.

Cargo insurance will protect your shipment financially. Freight insurance will not. 

Types of Cargo Insurance by Mode of Transportation

Cargo insurance applies differently depending on the mode of transportation, each with unique characteristics and risks. 

The three standard methods of cargo transportation are:

• Air
• Ocean/marine
• Truck and trailer

Your choice (or choices) of transportation modes will have a big impact on what kind of insurance you should choose. This is largely based on the unique perils each mode faces while cargo is in transit. We can understand these perils better by reviewing the most popular methods of intermodal transportation.

Air Cargo Insurance

While air transportation offers speed and convenience no other mode can offer, it also carries unique perils. Understanding these potential pitfalls reinforces the importance of having a robust air cargo insurance policy.

The following perils can present themselves during air travel:

• Turbulence or rapid pressure changes causing damage to fragile items.
• Theft or pilferage while the cargo is in the aircraft or during transit in the airport.
• Damage due to improper handling or packing during loading or unloading.
• Loss due to misplacement or misrouting by air carriers.
• Damage from exposure to extreme weather conditions during transit.
• Delays causing spoilage, particularly for perishable items.

Whether they originate from internal or external factors, it’s vital to understand these risks and ensure your insurance policy covers them.

Marine Cargo Insurance

The primary purpose of marine cargo insurance is to mitigate financial losses resulting from physical damage or loss of goods during sea transit. Problems come up due to a variety of reasons, referred to as 'perils' in insurance terms.

 Here are some of the common perils associated with marine cargo transport:

• Maritime Disasters: These include incidents like shipwrecks, stranding, or collisions that can lead to substantial loss or damage to cargo. 
• Seawater Damage: Goods can be damaged by seawater due to broken containers, faulty ship construction, or severe weather conditions.
• Piracy: Piracy remains a significant risk in certain sea routes. Pirates can hijack ships, steal valuable goods, or damage the cargo.
• Theft or Non-delivery: Goods can be stolen during transit or not delivered at all. This risk is especially high in certain regions with high crime rates.
• War and Political Risks: These include risks associated with war, civil unrest, or political instability in the countries the goods are being transported through.
• Jettison: In emergency situations, goods might be deliberately thrown overboard (jettisoned) to stabilize the vessel, causing a loss to the owner of the goods.

Given these risks, the importance of marine cargo insurance for importers and exporters cannot be overstated. It provides peace of mind to businesses and assures them that their financial interests are safeguarded, regardless of the perils that might occur during sea transit.

Truckload Cargo Insurance

In the trucking industry, a lot can happen between loading and delivering your cargo. Risks such as road accidents, theft, and damages from loading and unloading are fairly common. 

Some of the risks from which land cargo insurance offers protection include:

• Traffic Accidents: One of the most common risks, traffic accidents can cause severe damage to the cargo, especially if it's fragile or perishable.
• Theft: Trucks often need to make stops during transit, making them susceptible to theft. High-value or easily re-sold goods, are especially at risk.
• Damage during Loading and Unloading: This is a risk at both the departure and destination points. If cargo isn’t  properly handled, it can result in majordamage.
• Exposure to Elements: If the truck's body isn't weatherproof, cargo might be exposed to rain, snow, or extreme temperatures, which can damage certain types of goods.
• Spoilage: For perishable goods, any failure in the truck's refrigeration system can result in spoilage, leading to a total loss of the cargo.
• Strikes and Riots: These can lead to delays or even damage and loss if the truck gets caught in the middle.

Choosing the right motor truck cargo insurance provider for your truckload can ensure comprehensive coverage against these common perils.

Real-Life Examples of Cargo Insurance Rates

Cargo insurance rates will differ depending on what mode(s) of transit you choose to use. Your commodity type also plays a deciding factor in the total cost of your insurance premium. The following table lays out some approximations of what you can expect to pay via land, sea, and air to insure frequently-traded commodities.

For the purposes of this table, the assumed value of each cargo shipment is one million dollars.

Basic Insurance Premiums per Million Dollars

Commodity Type	Land (Domestic)	Ocean (International)	Air (International)
Computers and Electronics	$12,500	$19,200	$16,700
Household Goods	$17,000	$25,900	$24,900
General Merchandise	$5,500	$8,700	$8,100
Jewelry	$30,000	$30,000	$30,000

Source: cargoinsurancecenter.com

Bear in mind that these prices are based on industry averages. Rates can and will fluctuate based on factors such as shipping routes and market conditions. 

Also note that for some commodities, such as jewelry, insurance premiums are equal regardless of the shipping method. This is often the cased with high value items.

Understanding Cargo Insurance Definitions

We’ve gone over several types of insurance, and it might be worthwhile to review some basic terms of the industry.

 Let's break down some of these key terms.

• Perils: These are the risks that a cargo insurance policy covers. They can include fire, theft, water damage, piracy, and weather events.
• Bill of Lading (BoL): This is a document that shows that goods have been received by a carrier and are being transported to a specific destination. It is a legally binding document that provides important information about the shipment.
• Consignee: The party to whom goods are shipped and delivered. The consignee could be a buyer, a receiving location, or a freight broker.
• Freight Forwarder: A freight forwarder is an agent who helps businesses and individuals ship goods internationally. They handle all the details of shipping, so businesses can focus on their core activities.
• General Average: This is a principle of maritime law that states that all stakeholders in a sea venture must share the costs of any losses that occur during the voyage. This includes losses that are caused by a voluntary sacrifice of part of the ship or cargo to save the whole.
• Letter of Indemnity: This is a legal document that assures the other party that they will not suffer financial loss as long as the terms of the letter are followed.
• Marine Extension Clause: This clause extends the insurance coverage to inland transit once the cargo has arrived at the port of discharge.
• Salvage Loss: This refers to a situation where the cargo has been partially damaged, but not to the extent that it is a total loss.

Once you understand these terms, you’ll be well-equipped to choose the best type of cargo insurance for your needs. Of course, if you still need a hand making that decision, we’re here to help.

Why Choose Freight Insurance Coverage?

It’s clear to see that getting the right cargo insurance is a big part of protecting your business’s bottom line. 

Here at Freight Insurance Coverage, we can cover your cargo whether’s it’s traveling via:

• Land
• Sea
• Or air

Don’t let your precious payload fall prey to the potential perils of long-distance transportation. Get a quote today or contact our cargo insurance experts at (866) 975-0749 and start protecting your shipments from the perils of transit.