
The formula of cargo insurance cost is as follows: take the insured value and times it by the policy rate to get the insurance premium rate per single shipment. Remember, this depends on which insurance provider you choose, and what type of cargo you’re insuring.
Let’s do the math: If the value of your commercial invoice is $50,000, and your insurance provider charges you $.50 per $100 with a $10 minimum for its policy. Your commercial invoice value sits at $50k, and your insurance then at $250.
This figure is for the most basic policy, so even though it insures the entire value of your shipment, it might lack those added extras offered in other insurance policies.
The cost of cargo insurance depends on several factors, including the value of the goods, type of cargo, method of transport, destination, and the level of coverage selected. On average, cargo insurance costs range from 0.1% to 2% of the total shipment value. Here’s a breakdown of what influences these costs.
Value of the Goods
The value of the cargo is a major determinant in calculating insurance premiums. Higher-value items, such as electronics or luxury goods, require more coverage, leading to higher premiums. For instance, insuring a shipment worth $100,000 at a rate of 0.5% would cost $500. Lower-value goods, like bulk commodities, typically attract a lower premium percentage.
Type of Cargo
The nature of the goods being shipped affects insurance costs. Fragile, perishable, or easily damaged items like glassware or fresh produce are considered high-risk, resulting in higher premiums. Hazardous materials also command higher rates because of the increased risk of loss or damage. In contrast, non-perishable, durable items like steel products may be less expensive to insure.
Method of Transport
The mode of transportation—whether by sea, air, road, or rail—significantly impacts insurance costs. Sea transport generally carries higher risk due to exposure to natural elements and the potential for maritime accidents, while air transport may be less risky but more expensive due to the value of goods commonly shipped this way. Road and rail shipments are usually moderate in cost but depend on the specific route and destination.
Destination and Route
Where the cargo is headed and the route taken can also affect insurance premiums. Shipping to regions prone to natural disasters, political instability, or high theft rates will increase insurance costs. For example, routes that pass through piracy-prone areas may have additional surcharges. Conversely, domestic shipments within stable countries tend to have lower insurance costs.
Coverage Type
The type and extent of coverage you choose influence the overall cost. Basic coverage, which includes protection against common perils like accidents and natural disasters, is cheaper than comprehensive coverage, which protects against a wider array of risks, including theft, war, or acts of terrorism. Some shippers may opt for “All Risk” coverage, which, although more expensive, provides extensive protection.
Policy Deductibles
Like other insurance types, cargo insurance policies often include deductibles. A higher deductible lowers the insurance premium but means the shipper will have to cover more out-of-pocket in the event of a claim. If you select a lower deductible, expect higher insurance costs.
Additional Factors
Other considerations include the frequency of shipments. Businesses that regularly ship goods may negotiate better rates or opt for annual cargo insurance policies, which can be more cost-effective. Additionally, the claims history of the shipper can influence premium rates. Companies with a track record of frequent claims may face higher insurance costs.
Example Scenarios
For a $50,000 shipment of durable goods traveling domestically by truck, the cost of cargo insurance might be around $50 to $250 (0.1% to 0.5% of the value). If the same goods are shipped internationally by sea through a high-risk area, insurance could cost up to $1,000 or more.