What Is Freight Insurance in Shipping and What Does It Cover?

What Is Freight Insurance in Shipping and What Does It Cover?

If freight shipping is part of your business, then you need to get certain aspects of it right. Not only do you need to get goods to their destinations within a reasonable amount of time, but you also need to make sure they arrive there in good condition. Insurance for freight is available, and you should utilize it to protect your brand when things go awry. Cost insurance and freight losses are a part of the trade, but you can protect the company's interests.

Difference Between Freight Insurance and Freight Liability

Whether you are doing FTL freight shipping or need LTL insurance, there is a difference between a freight insurance policy and freight liability. Freight insurance is coverage that will replace the value of your freight in the event of damage or loss so you don't have to pay for the replacement of the freight out of your pocket. This is different than the freight liability often a part of every shipment. In those cases, you have to prove that everything was packed properly by your team.

What Are the Incoterms in Freight Shipping?

freight insurance polic

Freight insurance coverage can get tricky enough for domestic freight, but shipping freight insurance gets even more complicated when you are shipping internationally between different countries. You'll have to learn about incoterms and how they relate to both insurance and liability. Incoterms decide which of two different business partners will handle the risk and insurance of any goods shipped. In particular, when does the risk transfer from one party to the next?

There are three incoterms in particular that you need to know.

  1. EXW: This stands for Ex Works. This incoterm means the buyer will bear the risk and all insurance costs from the point the gods clear export customs to the moment they receive the goods.
  2. FOB: This stands for Free On Board. In this case, the seller will be responsible for cost and risk until any goods get loaded onto an aircraft or cargo vessel. Once that happens, the cost and risk are transferred to the buyer.
  3. CIF: This stands for Cost, Insurance, and Freight. Sales transacted under this incoterm are ones where sellers accept risk before goods are loaded onto aircraft or cargo vessels and pay insurance costs until goods get to the discharge port. That's when the buyer shares costs and has sole responsibility for anything after that.

What Does the Freight Insurance Cover?

While you probably accept the necessity of freight shipping insurance and acknowledge that freight coverage is generally a good idea, do you really know what freight carrier insurance covers? Typically speaking, it covers the liability of a freight forwarder in terms of loss or damage of customer goods while they are in transit. Such losses or damage would have to be caused by the negligence of the freight forwarder for a claim to be technically payable.

Freight insurance coverage gets calculated based on the weight of any involved goods. For instance, if a freight insurance claim happens, there would be an identical payout for 1 kg of gold as would happen for 1 kg of paper.

Even if a freight insurance claim winds up being successful, your recompense is going to have serious limitations. The liability of freight forwarders is specified in specific conventions based on which transportation mode is utilized. These conventions put ceilings on how much compensation might be due to the particular shipper.

You need to go through these conventions and learn all the applicable terms so you can understand the fine print of the terms and conditions. Doing so will help you learn just how much you might get compensated in the event that your freight is lost or damaged while in transit. Knowing this helps you budget for such possibilities, as they will happen eventually the more shipping that your company does over time.

When Should You Go For Freight Insurance?

cost insurance and freight

Regardless of the kind of freight commodities you might deal with, there are three times when you should opt for freight insurance. The first is when you ship fragile goods more likely to be broken. The second is for high-priced products, and the third is when you don't have enough time for claims processing.


Even in the digital age, many companies still have to move physical goods from one point to another. No matter how safely things get packed or transported, damage and losses can still happen, which makes freight insurance a necessary cost of doing business. If you need a freight shipping company to move your goods, then get a quote right away.

No items found.