Shipping Insurance: What It Covers and When You Need It

Why Cargo Insurance Matters

International shipping involves multiple handoffs, modes of transport, and weeks of transit. While total losses are rare, damage is not uncommon. Without insurance, you bear the full financial risk of anything that goes wrong between the factory and your warehouse.

What the Carrier's Liability Covers (and Doesn't)

Shipping carriers have limited liability built into their contracts:

• Ocean carriers — liability is typically limited to around $500 per shipping unit (package or container) under most bills of lading, unless you declare a higher value
• Airlines — liability limits vary but are generally based on weight, not actual value
• Road carriers — liability varies by country and transport contract

In most cases, the carrier's standard liability covers only a fraction of your goods' value. You would need to prove the carrier was negligent to claim, which can be difficult.

Types of Cargo Insurance

All Risks (Institute Cargo Clauses A)

The broadest coverage:

• Physical loss or damage from any external cause
• Includes theft, breakage, water damage, and contamination
• Exclusions apply for inherent vice (the product's own nature), inadequate packaging, and deliberate damage

This is the most commonly recommended policy for commercial importers.

With Average (Institute Cargo Clauses B)

Covers:

• Loss or damage caused by specific named perils (fire, explosion, stranding, collision)
• Washing overboard, earthquake, volcanic eruption
• Water damage from sea, lake, or river water entering vessel

Does not cover theft, breakage, or damage from rough handling.

Free of Particular Average (Institute Cargo Clauses C)

The most basic coverage:

• Only covers total loss, fire, explosion, stranding, or sinking
• Does not cover partial losses, theft, or damage

Suitable only when the risk of partial loss is very low.

What Insurance Typically Costs

Marine cargo insurance is relatively affordable:

• Typically 0.3% to 1.5% of the insured value
• Rates depend on the goods, route, mode of transport, and packaging
• High-value, fragile, or theft-prone goods have higher rates

For a $20,000 shipment, all-risks insurance might cost $60–$300. That's a small price for peace of mind.

The CIF Insurance Trap

If you buy on CIF (Cost, Insurance, Freight) terms, your supplier arranges insurance. However:

• The seller is only obligated to provide minimum coverage (Clauses C) unless otherwise agreed
• The policy is often with an insurer you can't easily claim from in your country
• The coverage amount may be the CIF value, not the value including your expected profit

For better protection, consider arranging your own insurance even on CIF terms, or buy on FOB terms and control the insurance yourself.

When to Insure

Always Insure

• High-value shipments
• Fragile products
• First shipments with a new supplier or route
• Products that can't easily be replaced or re-ordered quickly

Consider the Risk

• Regular, low-value shipments where you can absorb occasional losses
• Very durable products on well-established routes
• When you have a self-insurance program (setting aside funds for losses)

Minimum

• Even for low-value shipments, consider basic coverage — a lost or damaged container can represent months of work and capital

How to Make a Claim

If damage or loss occurs:

1. Document everything — photograph damage immediately upon receipt
2. Note damage on delivery receipt — sign as "received damaged" or "subject to inspection"
3. Notify your insurer promptly — most policies have strict notification deadlines
4. Preserve the goods and packaging — the insurer may want to inspect
5. Gather documentation — invoice, packing list, bill of lading, photos, survey report

Key Takeaway

At less than 1% of shipment value, cargo insurance is one of the most cost-effective risk management tools available to importers. The question isn't whether you can afford to insure — it's whether you can afford not to.