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Shipping Insurance: Everything You Need to Know

by Matt Corby,
Apr 19, 2022
Man scanning a package for precise logistics tracking
Man scanning a package for precise logistics tracking

Shipping can be risky business. It relies on many moving parts and the coordination of many different parties, and there’s lots of potential for things to go wrong. The potential cost of goods being lost, stolen, or damaged can be a major source of stress for businesses, and leads many to think about taking out shipping insurance as a way of protecting them against financial risk. 

This article takes you through the basics of shipping insurance and explains both what it is, why it’s important, and when / if it is a good idea for your business.

What is Shipping Insurance?

Shipping insurance is pretty much what it sounds like: a shipping / transportation business makes an agreement with an insurance provider in which the business will be fairly compensated. In which the value of goods that were lost,  damaged, or stolen whilst in transit. In return for this guarantee, you would pay a regular premium to the insurer. 

Why is Shipping Insurance Important? 

It’s vital to think about how to protect your business from potential losses and hardships. Depending on the types of goods you transport and their value. Replacing or reimbursing other parties for damaged, lost or stolen goods can be a large financial drain on your business.

A good insurance policy can help to alleviate that potential drain by covering a portion of the risk involved in transportation, giving you greater control over your operations. 

What Options are Available?   

Every insurance provider will have different policies under which different things are covered, so it’s important to check the specifics on your own. However, there are three basic types of shipping insurance that you need to be aware of: 

1. Carrier Insurance

This is insurance that is provided by a carrier as part of a delivery service. 

2. Self Insurance 

This often comes in the form of a ‘customer guarantee’ and involves assuming responsibility for reimbursing or replacing goods for the buyer if they are lost, damaged or stolen in transit. 

3. Third Party Insurance 

Third party insurance is the type that is most likely to apply to you. It involves signing a contract with a third party insurance company that isn’t connected to either you or the buyer. 

When Do You Need Shipping Insurance?   

Insurance needs to be cost effective for your business  in order to justify taking out a policy. This usually involves some variety of cost / benefit analysis where you weigh up the cost of the premium against the potential value the policy could provide you. During this process it is important to estimate the value of the products you transport, and the likelihood of them being lost, damaged, or stolen whilst in transit.

Although we’re always inclined to suggest going on the safe side, there are a range of factors that influence if / when shipping insurance is a good idea for your business. 

1. You regularly transport fragile goods 

Let’s face it: some goods are simply far more likely than others  to be damaged during transit, and if you transport these goods regularly then you are likely to benefit from the protection and peace of mind that shipping insurance can provide. If these items are damaged, then you can recoup the costs from your insurance provider rather than the damages costing your business. 

In this sense, insuring a shipment of rubber ducks is far less crucial than insuring a shipment of champagne flutes, since it’s far harder to damage or break a rubber duck. 

2.You regularly transport expensive goods 

The value of the goods that you transport is another key factor in determining whether or not shipping insurance is a good choice. The burden on your business that is created by lower cost goods being damaged or lost is far lower in the case of cheaper goods, whereas the transportation of higher value goods can present more of a financial risk. To determine whether insurance is a good financial decision, it is often a good idea to weigh the cost of replacing goods out of pocket against the cost of your premiums, along with how likely it is that the items will need to be compensated for. Expensive and fragile goods carry a higher risk associated with them, and companies that transport them may have a greater need for insurance. Of course, the definition of expensive depends on the size of your business, which is why thorough analysis is needed. 

3. You transport goods at risk of theft 

For precious, priceless, or high-risk goods, such as jewellery, art, or pharmaceuticals, the risk of theft whilst in transit is higher. If you transport goods that are likely at risk of theft, then insurance can be a good way to recover costs afterwards. The equation will likely be the same as with goods of high value: what is the potential benefit provided by the policy vs. the cost of taking it out?

4. To guarantee customer satisfaction

At the end of the day, the most important part of the transportation industry is maintaining the trust and relationships that you have with your customers, and a loyal customer is often worth a great deal to a business.  

Final tips on Shipping Insurance

Of course, no two insurance policies are the same, and we can’t tell you whether or not it is going to be the right move for your business.

What we do recommend is that you thoroughly look into whatever policy you’re thinking of and make sure that the goods you transport and methods of transportation are securely covered.

Many businesses can be left in the lurch after finding out that they missed something important in the fine print, and it’s always a good idea to get sound legal advice before signing up. 


And that’s our rundown! If you have questions about any aspect of the shipping process, don’t hesitate to get in touch, or read some more of our articles to know more about different aspects of the shipping process.

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