The Basics of Cargo Insurance

Amanda CallahanGeneral, Shipping GuideLeave a Comment

What is Cargo Insurance?

Cargo insurance is the insurance that all carriers must have. Just like car insurance, there is a minimum amount of insurance required for carrier liability. This is a rather limited version just the same as remedial insurance for vehicles and only covers things like vehicle accidents or natural disasters. That said shippers can request cargo insurance as an addition to the carrier liability in order to protect their goods from theft, damage, or lost in transit.

Types of Cargo Insurance

Cargo Insurance functions very similarly to life insurance or health insurance in so far as there are many options Each of which comes with different limitations and coverages.

Land Cargo Insurance

Land cargo insurance covers your shipment while it is transported on land. Most of the time if your cargo is on a truck you would want land cargo insurance. If your cargo is transported or managed by a utility vehicle you want this as well. Be advised that this insurance is only domestic so it will only apply within the confines of the United States.

The coverage gives you protection against theft, damage from collision, and similar risks.

Marine Cargo Insurance

Marine cargo insurance covers your shipment for the sea leg of its journey. This applies to sea or air freight.  This particular insurance is international.

This gives you coverage from bad weather, piracy, damage from loading or unloading, and similar risks.

Be advised that Marine insurance policies can be permanent or renewable. So, if you do not ship regularly you can choose a renewable policy and pay for one-time voyages. These are going to be relatively inexpensive and a perfect solution for infrequent International shippers. Frequent shippers will want a permanent policy for the duration of their shipments.

Why Cargo Insurance is Important

Cargo insurance is important because it provides a sort of stop-gap that goes above and beyond the minimum requirements for carrier liability. Like all types of insurance, it is always better to have it and not need it than to need it and not have it. If something should go wrong, a shipment on board a vessel should sink or theft should occur at the port, your company could suffer serious financial losses.

More to the point, your company could be responsible for its portion of losses along the chain of shipment. The maritime principle of General average stipulates that all losses from damages that are caused by an unforeseen problem are divided among the owners of the surviving merchandise on that vessel. This means that if your shipment is onboard a vessel with shipments from 10 other companies, even if your cargo was undamaged after an unforeseen problem, you are still financially responsible for the compensation to the other owners whose cargo was damaged or lost. If 9 out of 10 other companies on board that vessel sustained damages or losses, you might be the only company to come out ahead but now you are on the hook for compensating them. No doubt having Insurance could protect you in these instances.

In any case, having Insurance protect your company against devastating losses when these things happen.

Different Types of Cargo Insurance

Cargo Insurance typically includes shipment transportation whether that is by water, by air, by rail, or by road.  The extent to which your shipment is covered is going to vary based on the details of the policy you have. To that end, it is imperative that you review the fine print of your policy before you sign on the dotted line.

All Risk Coverage

All risk coverage is the broadest coverage you will find with a wide range of protection. Generally speaking, this coverage will apply to physical losses and damages which are the result of an external cause. Bear in mind that this typically applies to approved or general goods. There are exclusions of course.

Damage to your cargo because of negligence is not covered most of the time. An example of this would be shipping something that is time-sensitive even though you know there is a congestion problem at that port.

Inherent Vice is typically excluded. This refers to the deterioration of your cargo simply because of the cargo itself. Wine and beer, for example, qualify as inherent vice because they can be affected by temperature changes or movements during transit.

Other exclusions include cargo abandonment, war, strikes, riots, civil commotions, Customs rejection, loss of use, and failure to pay. Other external factors that are not covered could include pollution, infestation, earthquakes, etc.

Named Perils Coverage

Within this particular coverage, you only receive losses caused by The Perils that are named in the policy. This might include things like  This might include things like vessel collision, vessel sinking, bad weather, earthquake, theft, derailment, or not delivery. Remember that only the things listed are covered so these types of policies are more limited.

Benefits of Cargo Insurance

Cargo Insurance gives you coverage for the duration of your shipment’s journey. You can protect your shipment against damage or loss, the result of external factors. With cargo Insurance, you can even protect your shipment while it is on land but still in route to the buyer.

If a shipment is lost at sea, for example, general carrier liability will be insufficient to recompense for the losses. If a shipment is being transported with a container vessel and it sinks, carrier liability will be insufficient and your company could go under. If your truck on the highway gets involved in the accident, your company is responsible for its share of the losses which could negatively impact the bottom line for your operation. But with cargo Insurance, none of this will happen in the event that the worst should take place.

Should You Request Cargo Insurance?

In the end, cargo insurance is very important. There are serious consequences associated with not having cargo insurance.  In order to protect your company from serious losses and potential liability, requesting cargo insurance is a must.

Amanda Callahan

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