Shipping conditions are unpredictable – thank you, Mother Nature – which is why freight forwarders value proper shipment packing. Cargo insurance is taken out against any risk of physical damage during shipping. Therefore, it is a smart move to have insurance when shipping your cargo over large distances so you will be compensated against damage or loss. Here is everything you need to know about freight insurance, also known as cargo insurance, and how it works.
What Is Cargo Insurance?
For any type of international trading, cargo insurance is immensely important. In general, all-cargo carriers have a certain amount of insurance. This is also known as carrier liability but may not be sufficient for large cargo. For this reason, companies prefer to choose a special kind of insurance that saves them from losing money against any damage due to theft, loss, or a delay in shipping. Goods are usually insured from the time they are dispatched from the warehouse or storage and are covered by insurance until they reach their destination.
Importance of Cargo Insurance
Cargo insurance is especially important for businesses, as it decreases the risk involved in importing and exporting. This includes risk policy, or floating policies, in which the exact value of the goods is not calculated and the payment for insuring them changes over time. You can take every measure you like to protect your cargo from damage, but you cannot control everything. From unpredictable weather to your shipment being packed improperly (especially if you have opted for LCL shipping), there is always a chances of your consignment being damaged. That is why all shipping lines are legally bound to offer cargo insurance coverage to any cargo they ship.
Different Types of Cargo Insurance
There are two primary types of cargo insurance for domestic and international shipping. Their terms and conditions may differ by country.
1.Land Cargo Insurance
Land insurance, of course, covers shipments being transported over land. It is applicable, for example, when your cargo is transported by truck or other utility vehicles. This is a form of domestic insurance that applies only within a country and covers everything from theft and collision damage to other risks.
2.Marine Cargo Insurance
Marine cargo insurance covers transportation by sea and, in the case of air freight, by air. The basic difference between land and marine cargo insurance is that the latter applies to international shipping as well.
This type of insurance covers everything from damage incurred during loading and unloading to unpredictable and bad weather, piracy and any other type of risks.
You can opt for either renewable or permanent marine cargo insurance. If you do not ship frequently, choosing a renewable policy may be the better idea. These tend to be more expensive and you end up saving a considerable amount of money. For frequent shippers, a permanent policy makes more sense, since it can cover you for a predetermined time period, irrespective of how many shipments you send.
Different Types of Insurance Policies
Along with the different types of insurance, there are different types of policies as well.
1. Open Cover Cargo Policy
An open cover cargo policy applies when the insurance holder chooses to cover many shipments that are being shipped together. As mentioned earlier, there are two primary categories of this policy:
The renewable policy is applied for a specific amount that can be renewed after expiry; a permanent policy is meant to cover a stipulated time period, no matter the number of shipments.
2. Specific Cargo Policy
This is applicable to companies that only ship specific consignments and insure those consignments only. Specific cargo policy is also known as voyage policy.
3. Contingency Insurance Policy
If customers do not want to insure their goods but refuse the shipment if damaged, contingency insurance comes into play. Customers sometimes do this to avoid liability, and the loss falls solely on the seller. To save the seller under these circumstances, a premium rate is available which is lower than any other cargo insurance on this list.
Some Risks Covered by Cargo Insurance
Despite the difference in policies, all cargo insurance generally covers these risks:
- Earthquake, lightning, flood, storm or any other natural disaster
- Strike, riot and war
- Any impact caused by rail or road vehicles
- Accidental loss or damage
Now that you know everything about cargo insurance, make sure to buy it to protect your cargo and save yourself from future monetary loss. Not only will it save you a lot of stress, but it will ensure peace of mind to the sellers who will otherwise have to worry about their merchandise.