Freight Insurance 101: Types, Coverage & Cost

Shipping goods internationally carries risks, the most common of which are accidental damage, loss, or theft. While measures to prevent these are in place, it pays to take precautionary measures to protect yourself in case something happens to your cargo during transit.

That’s where freight insurance comes in. Designed to protect the value of your goods during shipping and make shipping goods seamless, freight insurance can give you peace of mind and go a long way in helping you mitigate the risks of international shipping.

What Is Freight Insurance and Why Is It Important?

Freight insurance is a type of insurance policy that protects the value of your goods during transit. It ensures that, in the event of damage, loss, or theft, the policyholder is able to recover the financial value of their goods, thus mitigating losses.

Freight insurance is an essential aspect of international shipping. Its benefits include giving businesses peace of mind and financial security. In some cases, freight insurance may even be mandatory for compliance.

Types of Freight Insurance Coverage

There are three main freight insurance types. Understanding their differences will help you choose the right policy for your cargo.

All-Risk Insurance

All-risk insurance is a comprehensive policy that covers most types of shipping risks, including damage, loss, theft, and other unforeseen events.

It’s best used for international or multi-modal shipments with higher risks. We recommend this policy for businesses shipping high-value or fragile goods.

Total Loss Insurance

Total loss insurance only provides financial recovery when the entire shipment is lost or destroyed. In other words, it only covers catastrophic loss.

Because of its limited coverage, it’s the more affordable type of freight insurance. However, it may be disadvantageous for high-value shipments, so it’s only recommended for low-value goods.

Specific Peril Insurance

Specific peril insurance is a type of freight insurance that covers only the risks defined in the agreement. Depending on the terms, these can include theft, damage, loss, or fire.

Unlike the other insurance types, specific peril insurance is highly customizable and has a low premium cost because it only focuses on certain hazards. But even then, the scope is limited and only tailored to specific risks relevant to your business.

What Does Freight Insurance Cover?

Freight insurance coverages vary depending on the type you purchase. But generally, it helps you recover financial losses in case of the following scenarios that take place during transit:

• Damage: Physical harm to goods during handling or transit.
• Theft: Loss of goods due to hijacking or pilferage.
• Loss: When goods are misplaced or never arrive at their destination.
• Natural disasters: Damage or loss of goods caused by acts of God, including hurricanes, floods, and other environmental factors.

Factors That Affect Freight Insurance Costs

At this point, you may be wondering how much it would cost to obtain freight insurance for your cargo. The freight insurance cost depends on a couple of factors, including:

Shipment Value

The main factor determining the insurance premium is the value of the shipped goods. High-value goods, such as luxury items, cars, machinery, or electronics, are more expensive to insure because they pose a greater financial risk to the insurer.

On the other hand, low-value goods like raw materials and textiles will attract lower premiums.

Transportation Method

Another factor that influences insurance costs is the mode of transport. Premiums for air and ocean freight tend to be higher than those for land transport.

Air freight has higher premiums because of the value of goods commonly shipped by air and the associated costs. Ocean freight, on the other hand, carries more risks, including longer transit times and exposure to harsh weather conditions. Unlike shipping via land, these premiums vary depending on regional infrastructure and risks.

Distance and Route Risk

If you’re shipping goods long-distance, you can expect higher premiums. The longer your goods need to travel, the higher the risks involved.

In the same way, some routes are considered high-risk, usually due to piracy, poor infrastructure, or geopolitical instability. If goods must pass through these lanes, insurance will cost more to account for the higher likelihood of claims.

Packaging Quality

Many shippers don’t know this, but how a shipment is packed can significantly affect insurance premiums.

Properly packed and well-secured shipments are less likely to sustain damage, reducing risk. Conversely, shipments with subpar or inadequate packaging have higher premiums because they pose a greater risk of harm.

How to Choose the Right Freight Insurance for Your Business

Choosing the right freight insurance is key to recovering financial losses in case something happens to your shipment during transit. To help you make the best decision for your needs and cargo, take the following tips:

Assess Your Risks

First, evaluate the types of goods you are shipping. This can help you understand the risks and vulnerabilities involved. For example, if you’re shipping fragile items, you will need more comprehensive freight insurance coverage.

In addition to the type of cargo, you also have to assess the risks associated with your route and chosen mode of transport. If your shipment is passing through a high-risk route, it’s worth it to purchase enhanced insurance coverage.

Understand Policy Terms

Compare different policies and thoroughly review the terms of each. Make sure that your chosen policy covers the potential risks associated with your shipment.

More importantly, pay attention to limitations and exclusions stated in the policy. Some might indicate no coverage for poor packaging, damage during loading or unloaded, or inherent product defects.

Work With a Reputable Insurer

Where possible, work with an insurer who specializes in freight insurance and understands the logistics industry. Find one with a proven track record of handling claims reasonably and efficiently.

You can find reputable insurers by talking to their customer service or reading online reviews and testimonials.

Compare Costs and Benefits

Don’t settle for assessing one type of freight insurance. Always compare multiple options and find the one that strikes the right balance between comprehensiveness and affordability. Cheaper premiums might look attractive at first glance, but they usually lack the scope to protect you from certain types of risks. This will only result in greater costs in the long run.

Some insurers will provide value-added services, such as dedicated claims support or risk assessment tools. Take advantage of these to enhance the overall value of your policy.

Tips for Lowering Freight Insurance Costs

While more comprehensive freight insurance will often come with higher premiums, there are ways you can reduce costs without compromising your coverage. Here are some tips:

Improve Packaging

Well-packaged goods often have reduced premiums because they are less likely to be damaged. Invest in high-quality packaging materials and protective measures to keep your goods safe during transit.

Some good packaging options include sturdy boxes, waterproof seals, and shock-absorbing materials. If your goods are fragile, label them with “Fragile” or “Handle With Care” stickers to alert handlers.

Use Trusted Carriers

Trusted carriers are less likely to mishandle goods or experience loss, theft, and delays. Insurers recognize this, reducing premiums for goods handled by certified or preferred carriers.

When selecting carriers for your shipment, choose reliable shipping companies, ideally those that have partnerships with insurance providers.

Bundle Policies

To save on freight insurance, it’s a good idea to consolidate multiple shipments under a single policy.

Instead of insuring each shipment separately, you can bundle similar goods and obtain one policy while maintaining comprehensive coverage. This can lead to volume discounts and simplify the administrative process.

Negotiate Rates

Insurance premiums aren’t always set in stone. You can negotiate rates with your insurance provider and even customize a policy that balances cost and coverage.

Most insurers will be willing to lower premiums, especially if you can demonstrate your risk-reducing practices, such as working with trusted carriers and improving your packaging.