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What Is Cargo Insurance Coverage? The Protection You Need

December 20, 2022
 By Jacob Lee
What Is Cargo Insurance Coverage? The Protection You Need
Last Modified: October 5, 2023
Cargo insurance coverage is something that many shippers of freight get confused about. In this guide, we’ll show you what cargo insurance coverage is and how it will help you.

“What is cargo insurance coverage?” is a question that many shippers of domestic and international freight ask themselves. Transporting freight can be a risky endeavor to undertake, regardless of how far your freight travels. As a shipper, it’s important that you understand what insurance coverage is and how it can help you. 

There are many varieties of cargo insurance coverage to choose from. Cargo insurance covers things like natural disasters, theft, and improper handling of your goods. Having cargo insurance will also give you more protection than what’s afforded to you by carrier liability. 

We’ve got the complete rundown on cargo insurance so you know what to expect when you get this form of coverage. 

Various rail cars waiting to be transported

What Is Cargo Insurance? Do You Need It?

Cargo insurance is not required for domestic shipping, but is highly recommended. Even when carriers are transporting goods in the domestic U.S., plenty of scenarios can lead to your goods being lost or damaged. Some of these scenarios include:

  • Careless handling of your goods by the carrier
  • Natural disasters
  • The carrier misplaced your freight
  • Trucking accidents

These scenarios are more likely to occur the further away your freight has to travel. Freight that’s shipped over long distances often has to travel through more areas with varying weather and traffic conditions. Your freight will also pass through multiple terminals on its way to the final destination. All of these factors can present scenarios where your freight can sustain damage.   

Like with domestic shipping, you’re not required to have insurance to ship freight internationally either. That said, it’s also highly recommended that you obtain insurance for your shipment. There are even more factors at play that can cause loss or damage to your goods when shipping internationally as opposed to domestically. 

Without cargo insurance coverage, you’re left with only carrier liability to protect your shipment. This might seem like a good alternative, but there are many situations where carrier liability won’t protect you, such as: 

  • Acts of god (natural disasters)
  • Seizure by a public authority (government agencies like CBP, FDA, etc)
  • “Public enemy” or “act of war”
  • Inherent vice or nature of your goods

Below, we’ve included some alarming statistics that show why you should obtain cargo insurance coverage.

Why You Need Freight Insurance Coverage

Amount of e-commerce returns due to damage20 percent
Cargo Ship Losses from 2011 – 2021357
Amount of shipping containers lost at sea  2020 – 20213,113
How many semi-truck accidents per yearRoughly 500,000

Sources: Invesp, Statista, World Shipping and Policy Advice 

No matter how you look at it, having cargo insurance coverage for freight shipments is a great risk management option that all shippers should take advantage of. Check out our article on ocean cargo insurance coverage to discover how to protect your ocean freight.

A close up view of a cargo container

What Are the Benefits of Cargo Insurance?

Providing purchase protection for your shipment of freight is just one of the many ways that cargo insurance can help you. Insurance coverage will offer you plenty of other benefits when you use it. Some of these benefits include: 

  • Not being limited to coverage offered by carrier liability
  • Less paperwork and easier reporting if something does go wrong
  • You can negotiate the terms that work best for you
  • Having the ability to choose from different insurance options

Even if nothing goes wrong when your goods are being shipped, you’ll still have the satisfaction of knowing that you have protection for your goods. 

What Are the Types Of Cargo Insurance?

It’s difficult to say what cargo insurance will protect you from since there are so many varieties for you to choose from. There are three main types of insurance coverage plans that you can choose from. 

  1. Ground cargo insurance
  2. Marine cargo insurance
  3. Air Transport insurance

Depending on the needs of your shipment, you might have to use multiple types of cargo insurance to cover your freight during the entirety of its journey. 

1. Ground Cargo Insurance

Land transportation is a common form of shipping, especially when you’re shipping goods domestically. Typically when your transport goods using ground shipping your freight will travel via rail, truck or both. This option insures cargo from risks that often occur when using these methods of land shipping. Ground cargo insurance gives you risk coverage from the following:

  • Theft 
  • Collusion damages
  • Loss of goods

While ground cargo insurance can be used for shipments to other countries, they’re typically used only for domestic shipments. 

2. Marine Cargo Insurance

Marine cargo insurance works in a similar manner to land cargo insurance. Rather than covering your shipment for potential risks that can be incurred from ground shipping, marine cargo insurance protects from the potential risks that you could face when shipping cargo by sea. 

Some of the risks that marine cargo insurance covers include the following:

  • Damage incurred during loading
  • Damage incurred during unloading
  • Damage incurred during weather events
  • Piracies

There are many variations of marine cargo insurance that you can choose from. Since there are so many ways to go about shipping cargo by sea, these various insurance options were created to give shippers more to choose from. The marine cargo insurance options that you can choose are:

  • Warehouse to warehouse
  • General average insurance
  • Open coverage
    • Renewable open coverage
    • Permanent open coverage
  • Contingent cargo insurance
  • All-risk marine insurance

Regardless of how you want to ship freight by sea, there is a type of marine cargo insurance that works best for you. 

3. Air Transport Insurance

The last form of freight insurance we’ll discuss is air transport insurance. Air cargo insurance will protect you from the potential risks that come with shipping freight by air. Most forms of air cargo insurance only provide partial protection of around 60 percent of the value of the air freight that was transported. 

That said, there are many types of air cargo insurance that you can choose from, each of which offers varying levels of protection for your goods. The level of coverage that premiums provide can vary based on:

  • Value of goods
  • Nature of the goods
  • Where the goods are being transported
  • The route that is used to transport the goods

While rarer than other types of shipping, air transport has become an increasingly common form of transport for shippers that need to move their goods in a short period of time. 

Running a company? Then read our article on business cargo insurance.

Two cargo ships coming into a port

What Are the Types of Insurance Coverage?

There are types of insurance and types of insurance coverage. The types of insurance refers to insurance plans themselves and what they entail. Insurance coverage refers to how much coverage those plans will provide you with. Insurance plans will have three varying levels of coverage which include the following. 

  • All risk
  • Named perils policy (formerly called “free of particular average”)
  • General average

Below we’ll discuss each level of insurance coverage in detail so you know what each one will offer. 

1. All-Risk Coverage

If you’re looking for a broad form of insurance coverage for your goods, then all-risk coverage is what you need. Regardless of the form of transport you use, all-risk coverage will give you protection from most kinds of physical freight losses. All-risk insurance coverage also protects your goods from most types of external damages that your freight could suffer.

This type of insurance coverage usually applies to insurance premiums that protect “approved” or “general” types of goods. These terms are used to describe new goods that are usually not susceptible to damage. All-risk coverage may provide a broad degree of coverage. That said there are exclusions that all-risk coverage won’t insure you for. Some exclusions include: 

  • Damage your freight sustains due to negligence
  • Inherent vice (cargo that is susceptible to deterioration and damage due to its nature rather than external causes)
  • Customs rejection 
  • Abandonment of your freight
  • War, strikes, riots and civil commotions (WSRCC)  

Insurance policies that offer all-risk coverage are great when you need the maximum amount of protection. 

2. Named Perils Coverage

Many people still refer to named peril policy by its old name, free of particular average. Regardless of which name is used, each policy refers to the same thing. Rather than offering a broad amount of protection from physical loss and external damages, the named perils policy only protects you from the risks listed explicitly in your insurance policy. 

Some of the specific types of risk that the named perils policy can protect you from are the following:

  • Vehicle accidents
  • Vessel collision
  • Vessel sinking
  • Bad weather
  • Non-delivery
  • Various natural disasters

Named perils policy might be limited compared to all-risk coverage, but it will give the ability to only pay for insurance for specific covered events that are more likely to occur. 

3.General Average Coverage

The general average form of coverage is a bit more complex to understand than the other types of insurance coverage we’ve already discussed. Maritime shipments of freight typically utilize general average coverage as opposed to shipments that are moved with other modes of transportation.

Essentially, general average coverage dictates that any damage or losses that a shipment of freight suffers are shared evenly between all parties whose cargo is aboard the same vessel. That means that even if your shipment hasn’t suffered damage, you may have to pitch in and help cover another shipper’s damaged freight.   

General average coverage also applies when cargo has to be sacrificed to save the majority of the remaining cargo aboard the vessel, the crew aboard the vessel or the vessel itself. While it might sound unfair to have to cover other shippers’ freight, the amount you cover will be a proportional amount that’s divided among you and other shippers. 

Additionally, general average coverage also ensures that if you’re the one to lose freight during a maritime shipment, you’ll be covered by other shippers as well. 

Container being stacked and moved around at a port

What Do Incoterms Have to Do With Cargo Insurance?

Incoterms are a tool that is used between buyers (importers) and sellers (exporters) when conducting an international shipment. Essentially, Incoterms are tools created by the International Chamber Of Commerce (ICC) that help buyers and sellers understand each other’s responsibilities during their transactions. 

There are a total of 11 types of Incoterms, but two, in particular, deal with insurance responsibilities. These three types of incoterms are:

  • Cost, insurance and freight (CIF)
  • Carriage and insurance paid to (CIP) 

In regards to insuring international shipments of freight, it’s important that you have a solid understanding of what these Incoterms entail.

Cost, Insurance and Freight Incoterm (CIF)

CIF dictates that the seller of the goods will have to be responsible for insuring the freight shipment while it’s in transit. Any damages that the freight shipment sustains will also be the seller’s responsibility to deal with until the shipment arrives at the buyer’s destination port. CIF is only applicable for shipments that are transported by sea and waterway. 

Carriage and Insurance Paid To (CIP)

CIP requires the seller to follow rules similar to CIF. Sellers abiding by this Incoterm must insure the goods that make up the freight shipment up to 110 percent of the contract value. Lastly, CIP is usable for all shipments, regardless of the mode of transporting moving them. 

When Does Cargo Insurance Not Apply?

While we were discussing all-risk coverage, we briefly discussed some of the scenarios where your goods won’t be covered. Beyond the ones we listed, there are some other universal scenarios that insurance plans and coverage policies that won’t protect your goods. 

Some of these scenarios include:

  • Damage sustained due to poor packaging of freight
  • Flawed products that sustain damage
  • The type of freight itself
  • Certain modes of transportation

Before deciding on an insurance policy and level of coverage, it’s important to read through the scenarios where your insurance won’t cover you. That way you’ll be prepared if an event that your insurance doesn’t cover occurs. 

Freight Insurance Coverage Has You Covered

At Freight Insurance Coverage, we make obtaining insurance for your shipments easy. Rather than having to ask for insurance, we automatically apply insurance to all shipments and we factor the price of insurance in all of our quote forms. That means any freight you ship with us will be insured and protected. 

If you would like to know the details of what our insurance does and doesn’t provide, go ahead and give our team a call at (866) 975-0749. When you’re ready to ship your freight, fill out your quote today.  

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