Cargo insurance gives you the certainty that, if something should go wrong in transit, you will receive compensation of the value based on the commercial invoice. If there is no commercial invoice, the market value will be used to determine the amount. Transport costs will also be reimbursed.
Insurance that generally protects shipments from loss, damage, or theft while in transit. This coverage is beyond basic claims insurance that may be provided, and it will reimburse for the designated value of the goods if a covered event occurs while the freight is in transit.
Carriers and forwarders only have limited liability. If an unfortunate incident occurs, you may be faced with a long list of terms and conditions that are difficult for non-specialists to understand.
That’s why it helps to know the general principles, what the most common risks associated with goods transport are, and when it makes sense to arrange for cargo insurance.
Cargo insurance provides financial protection for goods transported via land, sea, or air. It covers the potential loss or damage to goods during transit, whether by a commercial shipment or personal cargo.
This type of insurance is crucial for exporters, importers, and businesses that rely heavily on the shipment of goods, ensuring they do not face significant financial losses from unforeseen incidents.
Types of Cargo Insurance
There are two main types of cargo insurance: land cargo insurance and marine cargo insurance.
- Land Cargo Insurance: This coverage protects goods transported over land, typically by trucks or rail. It often applies to domestic shipments and insures against various risks, such as collisions, theft, and accidents.
- Marine Cargo Insurance: This type covers goods transported by sea or air and is essential for international shipments. Marine cargo insurance safeguards cargo from numerous hazards, including rough seas, weather-related damage, and piracy. It also covers air shipments, extending protection against risks such as crashes, hijacking, or handling damages.
Within marine cargo insurance, there are different policy options:
- Open Coverage: An ongoing policy covering multiple shipments over a set period. It’s ideal for businesses with frequent cargo transit.
- Specific (Voyage) Coverage: A one-time policy that covers a single shipment from one point to another. It’s suitable for businesses or individuals who ship goods infrequently.
Coverage and Exclusions
Cargo insurance generally covers the loss or damage of goods due to external factors. Common perils covered include:
- Natural disasters like storms, floods, and earthquakes.
- Accidents during loading and unloading.
- Collisions and crashes.
- Piracy, theft, and hijacking.
- Damage caused during transit, such as rough handling or temperature fluctuations.
Exclusions: While cargo insurance is comprehensive, it has limitations. It typically does not cover:
- Intentional damage by the owner.
- Inadequate or improper packaging.
- Ordinary wear and tear of goods.
- Losses due to delays in transit.
- Financial losses from market fluctuations or product devaluation.
Importance of Cargo Insurance
Shipping goods without cargo insurance can pose substantial risks. Transit exposes goods to various hazards that could result in severe financial consequences for businesses. Cargo insurance mitigates these risks, offering compensation for lost or damaged goods, which provides peace of mind and financial stability.
Moreover, some countries and trade agreements mandate having cargo insurance, especially in international trade. Even if not required, it is often a wise investment to ensure business continuity.
How Cargo Insurance Works
When a covered incident occurs, the policyholder must file a claim with the insurance company, detailing the nature of the damage or loss. The insurer will assess the situation and, if valid, compensate the policyholder based on the policy terms. The amount reimbursed can depend on the declared value of the cargo, the extent of coverage, and other factors like deductibles.
Businesses should assess their specific needs when selecting a cargo insurance policy. Factors to consider include the value of the goods, the mode of transportation, the routes, and the potential risks.
Consulting with an experienced insurance broker can help tailor the right coverage for a company’s cargo needs.
