Everything You Need to Know About Buying Cargo Insurance

Despite insurance having been around for centuries, there is still a feeling that any form of insurance is a “grudge purchase”. By its nature, insurance is an intangible benefit, one that can only be tested under adverse circumstances, and frankly speaking as far as the relocation industry goes, there is nothing more unfavourable than cargo damage.

What is cargo insurance?

Cargo insurance is a type of insurance that covers/compensates a buyer or seller of goods against cargo damage or loss of cargo.

When do you need cargo insurance?

A move is long and rife with hazards. Your cargo will pass from hand to hand while on its way to you: whilst loading and unloading from trucks and containers; through ports and exam sites; and from warehouse clerk to warehouse clerk. Each step is necessary for your merchandise to ultimately reach you, but having your goods move through so many checkpoints increases the chance of damage.

We strongly recommend always getting cargo insurance to give yourself peace of mind and to save yourself from a huge hassle of sourcing replacements for damaged goods.

What does cargo insurance cover?

Cargo insurance usually covers damage caused by bad weather, loading and unloading, piracy, and other related risks.

Federal law requires trucking company carriers to carry some carrier liability insurance, but the minimum requirement may not be enough protection for your shipment. Moreover, other carriers don’t have the same requirement. This is why we often recommend additional cargo insurance for our clients. It typically covers external causes of loss and damage to your shipment.

Common triggers for cargo insurance include:

  • Natural disaster
  • Vehicle accidents
  • Acts of war
  • Piracy
  • Cargo abandonment
  • Customs rejection

When a covered event causes damage to your shipment, cargo insurance pays up to the amount you insured it for, minus your deductibles.

What does cargo insurance not cover?

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. Others may exclude cargo ship, freight trains, or airplanes.

The insurance industry does not have a standard cargo insurance form, so exclusions and inclusions vary widely.

Always set aside time to understand the insurance you are working with and do not hesitate to ask questions.

What would cargo insurance cost you?

Cargo insurance pays the value of shipments, up to coverage limits, when shipments are lost or damaged.

Indicate a price value to every insured item on your list. This price value is what it would cost to replace it at destination if it gets totally broken beyond repair. If you’re unsure about how some of your items like laptops, flat screen TVs may cost at your new destination, try googling for similar products from that country. Or, if your destination city is served by major online retailers like Amazon, you can search for a reference price from its website too.

The final insurance premium is calculated with a simple formula:

Total Value of Shipped items * Insurance Rate = Cost of Your Insurance

Is cargo insurance worth it?

Cargo insurance protects your goods from physical loss or damage during transit. The main objective is to provide compensation should cargo fail to arrive safely at its destination. There are numerous types of cargo insurance policies and the cost and coverage vary. Policies can be applied to land, marine, or air shipments, or a combination of modes and can cover international or domestic shipping.

It’s up to you to consider your options and decide whether the cost of cargo insurance is justified. If you decide it is, shop around to find the best policy to suit your needs and budget. If you’re shipping unusual cargo, consider using an insurance firm that specializes in those goods or take out a single-shipment policy in consultation with your insurance agent.

How much cargo insurance do you need?

Some people may not be aware that their cargo is under-insured as they usually take the market value of their cargo to be the sum insured. Unintended under-insurance is especially common when taking up cargo insurance for transporting used or second-hand goods.

The insured should disclose to the insurer that the goods are used goods when taking up cargo insurance. Customers are also advised to check that the sum insured is the new replacement value of the used items at the final destination and also add all freight, landing charges and duty into the sum insured. If the insured does not take these precautions and the market value of used goods is less than that of new replacement goods because of depreciation or partial loss, an “average” may be applied and the insured may need to bear some loss.

The rationale behind this is that if the gross value of the goods arriving at the destination is higher than the sum insured when loss arises, the insurer may consider it as under-insured and may apply an “average”. Compensation will be deducted in proportion to the amount of under-insurance and the insured may need to bear the difference as a loss.

For example, if you ship a chair that actually costs $100 to replace but you declare its value to be $30, this would amount to under-insurance.
Over-insurance is undesirable as well as you would be paying an unnecessarily higher insurance premium to over-insure your items.

To safeguard against any unintended under-insurance, book a free consultation with your dedicated Relo Buddy.

How is cargo insurance calculated?

The cost of your insurance is calculated by a simple formula:

Total Value of Shipped items * Insurance Rate = Cost of Your Insurance

What is Total Value of Shipped Items? – Depending on your chosen type of insurance – Basic or Comprehensive – the total value of shipped items will either be a sum of individual item values, or one lump sum.

What does this mean?

Basic – Basic insurance coverage only takes effect if your entire container shipment goes missing, ie if one chair is missing but the rest of your items remain intact, no claims will be applicable. Hence, it is not necessary to detail each item’s discrete value. What matters is the lump sum amount of everything in that container.
Comprehensive – Comprehensive coverage, as opposed to basic, covers both damages and missing items, and will be applicable for individual items, ie, if one TV cracks but the rest of the shipment is fine, the insurance company will insure you for the broken TV. Hence, choosing for comprehensive coverage is highly recommended.

Higher Insurance Rates (3-6%)Lower Insurance Rates (1-3%)
Covers both damaged and missing itemsCovers only missing items
Individually damaged or missing items are claimableOnly claimable when entire shipping container is missing
Worth its value and highly recommendedNot the most value for money or effective coverage

What affects insurance rates? – Basic coverage will definitely be cheaper than Comprehensive coverage (caveat: Remember you get what you pay for!)

The cost of your insurance is the product of your Total Value of Shipped Items and The Applicable Insurance Rates.

How to claim cargo insurance?

Carriers are innocent until proven guilty. If damage or loss does happen, carriers will do everything within their power to limit their liability or to avoid it altogether. The burden to prove that the carrier was at fault is placed on you, and you will need to definitively prove that:

  • Loss occurred while the shipment was in the carrier’s care, custody, and control
  • The carrier was negligent in handling your shipment

Here are the bite-sized steps taken from InterTrans Insurance’s instructions for preparation of loss.

  1. Don’t delay your submission
    Claims have to be submitted to the Insurance company within a specific number of days of delivery. This can range from a week to two months. We strongly advice you to look out for this number on your insurance certificate
  2. Track important details
    Besides information that most would have at their fingertips, like email address, phone and street address, there may be some fields that would require specific information, such as Packed by, unpacked by, In Storage?, Storage Location, and Storage dates. Do take note of these details when you see them and keep a copy of them handy – write them down somewhere or star the email containing the attachment. Here’s a simple description of details that often gets misinterpreted:
  • Inventory Number – refers the “number” of the item as stated on the inventory list. All insurance companies would provide you with an inventory list. If they don’t, request for one.
  • Item’s Room – refers to the room in which the item was before it was packed. Example: kitchen, bedroom.
  • Item Description – Describe the item you insured. If missing, be as detailed as possible. Example: Bookcase, white stain, light brown, 90×198 cm,Adjustable feet,1 fixed shelf and 4 adjustable shelves.
  • Damage – Indicate type: damaged or missing, and location of damage (Example: screen/ top corner/ table leg etc)
  • Item age & acquired date – Do fill in the date you purchased as accurately as you possibly can. If an item is secondhand, then the item age would differ from the acquired date.
  • Original Cost & Replacement cost – Do fill in the original cost as accurately as you possibly can. For replacement cost, do a thorough online search to find the exact similiar item as much as possible and record the cost of the similar item.
  • Amount claimed – If the claim is for damage, enter only the cost of repairing the item. If the claim is for loss, enter the replacement cost of the missing item or the amount stated on the valued inventory. The Underwriter reserves the right to require proof of ownership and/or value of any item claimed damaged or missing.

Carriers strictly limit their liability. Even if you are able to prove that the transporter was at fault, you may still not get the full value of your goods. If you turn look at the back page of any Bill of Lading, you will find the fine print outlining exactly what a carrier agrees to cover.

Final Tips

When getting Cargo insurance, always remember these tips:

Avoid coverage gaps by asking questions

“To help avoid potential coverage gaps, we highly recommend that those unfamiliar with cargo insurance work with an experienced insurance agent to assist with determining answers to the following questions:

Who is responsible for insuring the goods—the buyer or the seller?
When does the title to the goods transfer from seller to buyer?
What are the insuring terms?
Where is the insurance company located? If a U.S. importer asks the seller to provide insurance, the insurer will likely be located overseas. This could make the claim process more complicated.”
Asking questions makes it more likely that you can get sufficient freight insurance coverage.

Consider getting insurance through your freight broker

The easiest and most common solution for occasional and low-volume shippers is to get cargo insurance coverage through the freight expeditor or broker. Not only can they usually get the best deals for small shippers, they have experience working with freight and cargo insurers as well.

Work with an insurance agent with freight & cargo insurance experience

As with any insurance policy, it helps to work with insurers and brokers who have experience. Providers with experience in multiple transportation modes, customs brokerage, and international shipment have better insight into your risks.

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