Think of cargo insurance like your health and/or life insurance. As you can imagine, there are plenty of cargo insurance you can choose from, each with its own coverages and limitations.
In this post, we’ll give you an overview of the more common types of cargo insurance and their coverages.
Cargo insurance protects the financial interest of those shipping goods from potential losses or damages while in transit. Different types of coverage are designed to suit the varied needs of shippers, depending on the nature of the goods, the mode of transport, and specific risks associated with a particular journey.
Here are the main types of cargo insurance:
Land cargo insurance
Land cargo insurance, as its name suggests, covers your shipment when it’s being transported on land. This is generally when your cargo is on board a truck but also applies to when it’s being transported or managed by other utility vehicles. This insurance is domestic and coverage is only applicable within the country.
Land cargo insurance applies to goods transported by land vehicles, such as trucks and trains. It covers theft, damage from collisions, or other accidents during transit.
This type of insurance is common for domestic shipping within a country. Policies often include coverage for specific perils like fire, vehicle overturning, or natural disasters that could impact goods while being transported overland.
Coverage: Theft, damage from collision, and other risks.
Marine cargo insurance
Marine cargo insurance covers the sea (and air for air freight) leg of your shipment’s journey. Unlike the land cargo insurance, this applies to international transportation.
Marine cargo insurance is designed for goods transported by sea or air and covers the risk of loss or damage during international or domestic shipping.
This insurance is crucial for shipments involving long distances or multiple modes of transit. Marine cargo insurance is typically categorized into two main types:
- Open Coverage: This type provides continuous insurance coverage for all shipments made during a specific period, usually a year. It is suitable for companies that ship frequently and need comprehensive, ongoing protection.
- Specific or Voyage Coverage: This policy covers individual shipments. It is suitable for one-off or less frequent shipments, providing protection for the goods from their point of origin to their destination.
Coverage: Damage from loading/unloading, bad weather, piracy, and other risks.
Marine cargo insurance policies are either renewable or permanent. If you’re not a frequent shipper, it’s better to choose the renewable policy as it applies to one-time, single voyages. These tend to be relatively inexpensive and can end up saving you a considerable sum.
As for frequent shippers, a permanent policy will cover you for a determined period of time regardless of the number of shipments you’re sending.
All-Risk Cargo Insurance
As the name implies, all-risk cargo insurance covers almost all types of risks or damages to cargo. It includes protection against natural disasters, damage from improper handling, theft, or even acts of piracy. This type of insurance provides comprehensive coverage but may still exclude some specific risks, such as war or strikes, unless additional endorsements are purchased.
Named Perils Cargo Insurance
Named perils cargo insurance covers only the specific risks listed in the policy. If damage or loss occurs due to a peril not named in the insurance agreement, the policyholder will not receive compensation. Common perils include fire, sinking, collision, and theft. This option is less expensive than all-risk coverage but also more limited in scope.
Warehouse-to-Warehouse Coverage
This type of cargo insurance covers the goods from the moment they leave the seller’s warehouse until they arrive at the buyer’s warehouse. It includes protection during loading and unloading and while the cargo is in temporary storage. This comprehensive coverage ensures that goods are insured throughout their entire journey, even if multiple transport modes are used.
Contingency Insurance
Contingency cargo insurance is used when the primary policy taken out by the buyer does not respond to a claim. Sellers often use this insurance to protect themselves, especially in situations where buyers are responsible for arranging the insurance. If the buyer’s insurance fails to cover the loss, the seller’s contingency policy steps in to provide financial protection.
General Average
General average coverage is a principle applied in maritime shipping. If a ship’s captain decides to sacrifice part of the cargo to save the vessel during an emergency, the cost is shared among all stakeholders, including cargo owners. Marine cargo insurance typically includes this protection, ensuring cargo owners are not burdened with unexpected expenses due to shared losses.
Specific Endorsements
In addition to basic coverage, cargo insurance can be customized with endorsements to cover risks like strikes, riots, war, or political unrest. These additional policies are essential for shipments passing through areas prone to conflict or political instability.
