Cargo

What Is Cargo Insurance and How Does It Work?

Cargo insurance is an important tool for businesses that rely on the global transportation industry to move their goods.

It covers the many of the risks associated with transporting goods by sea, air, road, or rail, and it pays the cargo owner for its losses due to cargo loss or damage.

There are several types of cargo insurance available, including:

All risks coverage: This type of cargo insurance covers all risks of loss or damage to the cargo except those specifically excluded in the policy. It’s the most comprehensive type of cargo insurance.
Named perils coverage: This type of cargo insurance covers specific risks that may cause loss or damage to specific cargo identified in the policy. These risks may include fire, theft, collision, or natural disasters. Named perils coverage is generally less expensive than all risks coverage, but it provides less protection.
Open cover: An open cover is a type of cargo insurance providing continuous coverage for a specified period of time, rather than a one-time shipment. It’s typically used by businesses that regularly ship goods and want to have ongoing protection in place.

Things To Consider When Purchasing Cargo Insurance

When purchasing cargo insurance, the cargo owner should consider the value and nature of the goods being shipped, the mode of transportation, and the destination.

If the Supplier Buys the Coverage

If your seller offers to arrange insurance coverage, then it is vitally important to know the following information about the insurance coverage:

What kinds of losses are covered by the policy?
What are the policy limits?
What insurance company is underwriting (issuing) the policy and is it reputable?
Will a claim be paid in the country where you are located or in the country where the shipment originated?

Coverage options

Cargo insurance options include per shipment “pay-as-you-go” coverage and annual policies. Each caters to distinct needs.
The per shipment pay-as-you-go approach offers cost-effective coverage at pennies on the dollar and no deductible.
The annual coverage often comes with a deductible and is for those who ship regularly and value predictability of costs throughout a full year.
Most losses are only for a fraction of the entire shipment value, so be sure that your deductible is low enough to cover your losses.

What Is Cargo Insurance and How Does It Work?

Ways To Insure Cargo Shipments

There are several ways companies can insure their cargo shipments.

Standalone cargo insurance policies

One way companies can insure their cargo shipments is by purchasing a standalone cargo insurance policy from an insurance company through an insurance broker.

The policy, which typically lasts for a specific period of time , will specify the terms, conditions, and exclusions of the coverage.

The purchaser can choose a policy that meets its specific needs and risk profile.

Standalone cargo insurance policies are often used by major companies that have a high volume of shipments or that need to cover a wide range of risks.

Cargo insurance as part of a broader insurance program

Another way companies can insure their cargo shipments is by purchasing cargo insurance as part of a broader insurance program.

This approach involves purchasing a package of insurance products that may include cargo insurance as one of several coverages (e.g., property insurance, liability insurance, and business interruption insurance).

This approach can be more cost-effective for companies that need to purchase multiple types of insurance, as it allows them to bundle the coverage and potentially secure a discount.

Self-insured cargo shipments

In addition to purchasing cargo insurance from external sources, some major companies self-insure some or all of their cargo shipments.

This approach involves setting aside funds to cover potential losses and assuming the risk of loss or damage to the cargo themselves, rather than purchasing insurance coverage from an insurance company.

This approach may be taken by companies that have a low risk profile or that have a strong financial position and are able to absorb the potential costs of a loss.