The probability of accidents during international transportation is very high. That’s where the importance of cargo insurance comes in. Today’s post will explain detailed information about cargo insurance. Let’s take a look.
What is cargo insurance?
Cargo insurance is to reduce losses caused by cargo loss or damage during shipping. You can buy from your supplier, freight forwarders, or insurance broker.
Under CIF, for example, your supplier usually gives you cargo insurance at 10% basic, which only covers loss cases. If you want to cover damage due to fire or water in shipping, you need to talk with your supplier to buy the corresponding insurance type.
If you also want to protect your goods from loss in situations such as storage or loading and unloading, you can buy additional insurance. For example, you can buy warehouse insurance to protect your goods during storage.
Please note that the cargo insurance does not cover damage caused by insufficient packing. You have to communicate with your forwarder instead of insurance companies if that happens.
Can all types of goods be insured?
You can buy cargo insurance for most general cargo. However, you may not be allowed to buy it for some goods:
- Special cargo: such as fireworks, firecrackers, live animals, higher-value artworks, etc.
- Low-valued cargo: cost of insuring these goods is higher than their actual value.
These lists two common cases of uninsurability. Different insurance companies have their own policies and terms. In practice, you need to check with your freight forwarder or insurance broker whether your cargo can be insured or not.
Is cargo insurance worth it?
Of course, it is worth buying cargo insurance. In fact, there are hundreds of containers lost in the ocean every year. Suppose you have cargo insurance, even if your goods are damaged or lost in shipping, you can get some compensation and not be liable for all the losses.
The following example shows the importance of having cargo insurance.
We helped a client transit hardware tools valued at $50,000 to the US. These goods were damaged by water in shipping. The general average was declared. Fortunately, our client bought With Particular Average for the shipment, and the insurance company covered the damage. If our client had not bought cargo insurance or had only bought basic insurance (which only covers cargo loss), he would not have been able to claim and had to bear the big loss himself.
So it is necessary to buy cargo insurance, as well as choose the right insurance according to your cargo type. Just like we choose to buy the right health insurance for ourselves in daily life.
Cargo insurance coverage and types
2 types of cargo insurance coverage
All-risk and named perils are the two main coverage of cargo insurance.
- All-risk insurance, also known as open perils policies, assumes that everything is covered except for war, strike, etc.
- Named perils policies cover only the events listed in the policy. That is to say, if your insurance policy clearly states that it will only cover damage caused by the explosion, then you can’t obtain compensation if your goods are damaged due to the fire.
You should work with an experienced insurance broker to determine the best insurance policy for your needs.
Cargo insurance types
Whether you are shipping domestically or internationally, you can buy insurance for your cargo.
Marine & air cargo insurance
Marine and air cargo insurance are two ways to reduce losses caused by international cargo transportation.
Both can be divided into renewable and permanent.
- If you don’t ship cargo across borders regularly, you can choose renewable insurance for the one-time shipment, which is cheap.
- For importers with frequent cross-border shipments, permanent insurance is better for your business. It covers your cargo for a period of time (e.g. one year) regardless of the volume of the goods. It is more cost-effective in the long run.
Land cargo insurance
You can buy land cargo insurance for trucking and railroads to reduce the cargo damage.
How much does cargo insurance cost? (with an example）
Cargo insurance cost = (shipment value + cost of freight) * (1+ 10% basic) * insurance rate
- Shipment value is related to the type and quantity of goods.
- The cost of freight is related to the shipping value, transportation mode, distance from the port of origin to the port of destination, etc.
- 10% basic is in general, usually ranging from 10% to 30%.
- The insurance rates given by different forwarders or insurance companies are different, for example, 5% or 0.3%. It is based on the amount of cargo and the type of insurance you have bought.
Suppose you have a shipment of general cargo that needs to be shipped by sea from the port of Ningbo to the port of Los Angeles. You have bought all-risk insurance, and the insurance rate is 0.8%.
- Shipment value: $10,000
- Sea freight from the port of Ningbo to Los Angeles: $2,500
- 10% basic
- Insurance rate: 0.8%
Cargo insurance cost = ($10,000 + $2,500) * (1+10%) * 0.8% = $ 110
As you can see, you’ll be able to protect your goods for a fraction of the cost. What a steal.
Documents needed for cargo insurance claims
After receiving the goods, you need to carefully check the outer packaging and the condition of the goods. In the event of damage to your goods, you have to record them on the delivery receipt and take pictures as part of the evidence for your cargo insurance claiming. In addition, you have to submit the necessary documents, including:
- Original insurance policy or certificate. This evidence is the primary document used to claim, including the number, cargo details, and other terms and conditions applicable to the insurance policy.
- Copy of bill of lading. This provides information on the type, quantity, and destination of the cargo.
- Commercial invoice and packing list along with weight notes. A commercial invoice shows the price of the cargo. The packing list along with weight notes provides a detailed delivery.
- Survey report / Missing certificate. It is the result of a detailed investigation at the scene. A container damage report is also important if needed.
- Claim bill.
Note that different insurance companies have different requirements. You need to contact your insurance company or freight forwarder to confirm the required documentation before claiming.
JingSourcing has lots of long-term cooperation with reliable freight forwarders and can help you buy the most suitable cargo insurance according to your requirements. In addition, we provide general and full inspection services before shipping if you need them.
Contact JingSourcing for Cargo Insurance & Shipping