Shipping Insurance, How Does it Work?

September 9, 2020
Revenue, Profit, customer service, SEO, Customer Experience, Design, UX, Shopping Cart, Social Media

Shipping insurance is a type of financial service that provides monetary reimbursement to senders should their packages get lost or damaged while in transit. This type of insurance can be obtained to protect packages and to make sure that a certain amount of money will be reimbursed should any such loss or damage occur. The insurance fees that are collected are often based on the declared value of the items in the package.

On the other hand, shipping insurers have their own restrictions on what can be insured, like UPS, who do not insure precious stones, coins or cash. Similarly, selected shipping locations may also be rejected from coverage depending on the insurer or carrier. Also, eligibility for insurance may be required to meet certain packing requirements. It is typical for insurance contracts to encompass fine print that would exclude items deemed to be poorly packaged.

If your company is part of the ecommerce platform that ship products directly to their customers, the only way to protect your business is to acquire shipping insurance. This will keep your company from absorbing the entire cost of lost or damaged packages.

How it Works

A lot of shipping platforms today, like Fetchy, offer a basic level of insurance while others provide extra insurance that can be acquired as an add-on. The company works with third-party insurance and they offer automatic insurance for products less than 75 pounds or 100 USD, which covers the amount the seller paid for his product. For online sellers using Fetchy, the amount to be paid is 1% of the actual amount of the product, and then they will be insured by their third party insurance.

If during transit the package is lost or damaged, the receiver must contact the shipper without delay. Majority of insurance providers today have specific schedule cutoffs so if the shipper failed to alert the insurer immediately or the recipient of the package failed to alert the shipper, the right to file a claim may be forfeited and the shipper will be held liable.

The types of shipping insurance are very diverse but one of the most commonly acquired is the marine cargo coverage, also known as the marine floater. This type of shipping insurance often covers all types of shipment using different modes of transportation. Other types of insurance include Carrier Insurance, Third Party Insurance, and Self Insurance.

In general, a package that carries a marine cargo policy is covered from the warehouse of the consignor up until it reaches the consignee. If transitional warehousing is required, sometimes for bigger shipments, this may effectively change the end point of the coverage making the warehouse itself as the consignee because they accepted the delivery. This covers the most frequent risks and hazards, although it may have some limitations in protection for lost packages not related to a transit fortuity, such as items that were poorly packaged.

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Third Party Insurance

Another shipping insurance to consider is the third party insurance. This type of protection is often purchased from another company that is not connected with any carriers. The advantage of third-party shipping insurance is that it is less expensive and offers specialized services because the company’s focus is on insuring packages. Business companies that frequently ship packages at high volumes often use this type of shipping insurance because of it’s practical and cost-effective coverage for unanticipated loss or damage of packages.

The majority of third-party insurance companies offer coverage on international shipments. More often than not, processing of claims is much faster because the insurance companies deal directly with what was included in the protection agreement. In addition, these companies also offer simplified claims processing through online filing and dedicated representatives to process them.

Declared Value Coverage vs. Cargo Insurance

Although not exactly shipping insurance, declared value coverage establishes the maximum value that the carrier will be accountable for should your package get lost or damaged in transit. This puts a dollar value on the packages you are handing over to a specific carrier for delivery. You must understand that your carrier will only be liable for the exact amount you declared if something happens to the package while in their possession and after the carrier’s negligence was proven.

On the other hand, cargo insurance provides complete coverage for your package right from the moment the carrier picked it up from your doorstep up until it reaches its destination. The good thing about cargo insurance is that it sometimes covers more than the value of the insured items, including the freight expenses. And regardless of whether you have proven the courier’s negligence or not, this type of shipping insurance can still provide you with coverage for your losses.

Choosing the right shipping insurance for your ecommerce business is very important. Depending on your tolerance for risk and the worth of your merchandise, there are several options you can consider that will best meet your company’s needs. For ecommerce business owners, choosing the right insurance is the same as choosing the right shipping platform. Apart from convenience and streamlined shipping operations, a good coverage will make sure that the business is fully protected from unnecessary losses.

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