Shipping Insurance

1. Overview

With a rapid increase in the popularity of the eCommerce industry, the demand for reliable and good-quality shipping carriers is on the rise as well. Needless to say, this has all been fueled by a drastic change in customer expectations.

People need their orders delivered at earliest along with a superior buying & returns experience. This is why even the most established players in shipping business take the utmost measures to ensure that customers are always happy.

But despite the best of efforts by all parties involved, there’s still a chance for packages to get lost, misplaced, or damaged during transit. If this happens, not just the customer, you as an eCommerce business also stand the risk of losing out monetarily. This is a worst-case scenario every business should be prepared for.

Now, the best way to save your business from this loss is by getting shipping insurance. This way, if insured packages get lost, reimbursement is provided to cover the loss.

In this article, we’re going to provide you with a clear understanding of shipping insurance and how it works, so that you can proceed with getting your packages insured confidently.

2. What is Shipping Insurance? 

Generally speaking, it is quite unlikely that your package will become damaged or lost during shipping, but of course, the risks are still inherent and can never be fully predicted.

Now while the losses associated with lower value products might not be significant, when consumers buy goods of high monetary value, any damage to them could severely impact your business and its reputation.

Instead of bearing these losses, you should consider shipping insurance, for it will save you from unforeseen circumstances and help better your business’s reputation.

Shipping insurance, typically like other insurances, is a policy that provides a monetary cover for lost, stolen or damaged packages while shipping with a carrier. It can be purchased for a single package, a number of packages, or for a large cargo shipment. This type of shipment is generally purchased for goods of high monetary value. 

The insurance could be bought and then added as a hidden cost in the price of the item. It can be extremely handy for the business as well as the consumers, whenever a valuable package is involved, for instance, jewelry or cargo while moving to a new city.

3. How much does Shipping Insurance cost?

The cost of shipping insurance varies from package to package, depending on the value and volume of the shipment. Insurance for one single shipment is more expensive than insurance for bulk packages or regular monthly packages. This is because shipping insurance providers can often provide a volume discount via wholesale. 

Most often, eCommerce businesses purchase insurance from a separate provider in order to get volume discounts and wholesale rates. Consumers, on the other hand, usually purchase shipping insurance directly from the carrier. 

While we’re still discussing costs, let’s take a look at the prices of shipping insurance from some of the top providers. 

3.1) USPS Insurance Costs

For goods worth upto $50, USPS charges $1.65 and for goods from $50 to $100, insurance costs $2.05. The insurance for goods worth $100 - $200 is $2.45, and for goods worth $200 - $300 is $4.60. Above this, for every additional $100 on goods valued between $300 and $5,000, the insurance is $4.60 plus $0.90 per $100 increase. 

3.2) FedEx Insurance Costs

FedEx charges $0 for goods valued upto $100, $3 for goods valued between $100 - $300, and $1 for every additional $100 worth of goods over $300. 

3.3) UPS Insurance Costs

UPS charges $0 for goods worth up to $100 and $1.05 for every additional $100 worth of goods over $100. To qualify for UPS shipping insurance, the value of the shipped product should be at least $300, because UPS has a minimum insurance threshold of $2.70. 

4. Is Shipping Insurance really required for your eCommerce business?

The volume and value of your items is the key determinant when deciding whether or not getting shipping insurance is really worth the cost. The probability of an average shipment getting lost or damaged is low, however, if you’re into shipping a large volume of high-value goods, the shipping insurance is most likely to pay for itself.

To get a better understanding of whether or not shipping insurance is worth your packages, let’s take a look at these two categories of shippers and see which one your business fits into:

4.1) The casual shipper

This is someone who sends out packages once in a while and not in a large quantity. This type doesn’t quite require shipping insurance unless the items are of particularly high value. 

4.2) The business shipper

This kind, on the other hand, is constantly shipping items of high value and possibly in large volumes.

While shipping goods in large quantities, there’s a higher possibility of packages getting lost or damaged, and thus, naturally, in these cases, your business has a lot to lose. Thus, for a business shipper, shipping insurance is a must. 

In case you’re still confused about whether or not to get shipping insurance, we’d recommend you get it anyway. If you’re a business shipper, the cost of such insurance would be pretty manageable for you since It’s only a few bucks. Moreover, since you’re considering insurance, it’s a given that your shipment must be valuable enough. 

So go ahead and make a small investment in shipping insurance; it’s worth the potential upside you’ll get if things go wrong.

5. Why would your business need shipping insurance - Additional deciding factors

As mentioned above, shipping insurance is not needed for all shipments. Here’s a list of additional factors that can help you decide.

5.1) Product cost 

The value of your shipment is the most important determinant while deciding whether or not to get shipping insurance. Nevertheless, it may not always play a key role. Let’s look at an example to get a better understanding. 

Assume you’re selling jewelry and you decide to get one particular shipment insured because losing this item would cause your business a great monetary and reputation loss.

However, if you’re shipping 150 jewelry orders and only one of them gets lost, then it’s best to just take the loss of losing one shipment rather than getting insurance for all 150 packages. 

It’s as we said; the greater your risk level; the more your need for shipping insurance.

5.2) International shipping 

Shipments that are travelling a longer distance and undergoing varied types of carriers are more likely to get lost or damaged.

If your business ships internationally on a regular basis, then it’s best to contact your shipping provider and get shipping insurance. You could be eligible for discounted rates accordingly.

5.3) Customer expectations 

Most customers expect a free replacement if their package gets lost, and since most large corporations provide this facility, it is now expected from small businesses as well.

Shipping insurance provides a reimbursement or replacement of the item, based on the value of your product. This can significantly reduce the burden of the loss to your business. 

6. What are the Key Benefits of Shipping insurance 

For any business, delivering products in the best condition is the utmost priority. Nevertheless, retailers often tend to underestimate the importance of shipping insurance and later suffer from losses. Following are some benefits experienced by getting shipping insurance. 

6.1) Ease of mind

For any retailer, day-to-day operations are tedious and stressful enough. The additional tension regarding the safety of shipment just adds on. By getting shipping insurance, you can be more at ease and avoid the extra stress about the safety of shipments, for there is coverage for your capital in case things go wrong. 

6.2) Reduced burden of replacement 

In case your shipment is lost or needs a replacement, the burden of the loss will not solely be borne by you. With shipping insurance, the losses will be shared between you and the retailer. 

6.3) Easy to get insured 

Getting shipping insurance is simple - all you have to do is contact your carrier and add shipping insurance to your package. Doing so at the time of shipping will allow you to automatically add it to your overall shipping price. This way you can cover costs better and increase the prices of your products accordingly. 

7. What are the options you have when it comes to Shipping Insurance?

You can get shipping insurance for your packages through three possible options:

7.1) Option 1: Don’t buy all the insurance all at once

All carriers offer a declared value coverage for shipments; however, there are restrictions on certain commodities, such as animals and perishable goods, like food and flowers.

Carriers like FedEx and UPS, for instance, provide a $100 basic declared value coverage for all deliveries after taking into account the carrier’s terms of service, which includes that retailer/shipper has professionally packed the package and according to the carrier’s requirements. 

Thus, even if you do not decide to buy any additional insurance, your carrier is most likely to offer you a minimal amount for protection in case there has been damage or loss to the package, as long as there’s evidence that it was the carrier’s fault. 

7.2) Option 2: Purchase insurance from your carrier 

This is supposedly a better business option than just accepting the declared value coverage by your carrier. However, purchasing insurance separately has its own downsides. 

7.2.1) Your carrier’s insurance will be relatively more expensive

In most cases, purchasing shipping insurance directly from your carrier can cost up to 70-90 percent higher than buying equivalent coverage from a third-party insurance company.

7.2.2) Purchased insurance will require more manual work 

When purchasing shipping insurance directly from a carrier, you will have to select the insurance for each shipment individually. And if you’re using a different carrier, you’ll have to first review and research its insurance options and then select the best one for your shipment.

Additionally, every carrier has its own set of procedures and you will have to spend extra time in learning about their procedures, filling forms, and tracking down the required documents, such as photos and copies of invoices. 

7.2.3) Your carrier insurance will pay out the claimed costs slowly

In general, carriers take a longer time to reimburse customers as compared to third-party insurance companies. 

7.3) Option 3: Purchase shipping insurance from third party insurance company 

The smartest and safest option out there is to purchase shipping insurance from a third party that specializes in shipping insurance. With this, you can centralize and streamline insurance for your shipments. You could purchase a blanket coverage policy that provides protection for all your shipment for a specific period.

8. Different types of risks that Shipping Insurance covers

The best way to go about selecting the ideal shipping insurance is by closely studying the coverage each policy provides and selecting the one that best suits your requirements. Here’s a list of the kinds of risks that most insurance providers cover you against.

8.1) Physical damage

While loading and unloading shipments, the packages may get mishandled. Alternatively, in case of a road accident or heavy storms, the cargo can be severely damaged. All this is covered under physical damage. 

8.2) Stock damage 

This takes place while importing the goods and taking them to the warehouse, before supplying them any further. Stock damage coverage provides insurance for damaged stock while it was stored at your warehouse. 

8.3) Rejection Risks

Sometimes, while shipping internationally, cargo is rejected by customs for not meeting specific standards. In such cases, the retailer faces great losses. This is why for such case rejection, insurance provides complete or partial coverage for the loss, depending on the policy. 

8.4) Exhibition Risks

Most often, suppliers send out samples of their products to exhibitions and expos around the world for exposure; however, this comes at the risk of exposing the product to damage during transport or at the exhibition itself. Insurance provides coverage for such risks.

9. How do you get Shipping Insurance?

Now that most of the details and background regarding shipping insurance have been covered, all you have got to do is contact a carrier or insurance broker of your choice and strike the deal.

Once you’ve researched the possible insurance policies presented by your broker, you can narrow down on one, and submit the following documentation. 

9.1) Bill of Lading/ Lorry Receipt/ Airway Bill 

Based on the mode of transport you have chosen, you will be required to present either one of these documents to your insurance provider. Bill of lading is prepared while transporting goods via sea; lorry receipt is prepared while transporting goods via road; airway bill is prepared when goods are transported via air. 

9.2) Packing List 

This is a list of all the goods that are being transported. The nature and conditions of the goods will have to be provided in detail to the insurer so that they can determine if the goods can be insured. 

9.3) Invoice 

Invoices consist of details of the package, including key registration details that will later help the insurer carry out full research about your finances as well the reputation of your company.

Once your application has been completed and approved by your insurance company, you will be provided with an insurance policy. This is the most important document while filing for a claim, for it acts as proof of the insurance and has the ecommerce terms and conditions under which both parties agree upon.

10. Shipping Insurance FAQs

Though we hope our extensive description of shipping insurance has helped solve many of your queries around it, we understand that you may still have some unanswered questions.

Here are the answers to some of the most common frequently asked questions on eCommerce shipping insurance which may further help you get more clarity.

10.1) How much does it cost to ship with insurance?

The cost of eCommerce shipping insurance depends on the carrier and the value of the shipped goods. The prices offered by some prominent carriers are listed above. 

10.2) How does shipping insurance work?

In order to get reimbursed on a package, a claim needs to be filed with your insurance provider, and you need to submit the necessary documentation proving the value of the items. In case the shipment was lost or stolen, the carrier will look for it, otherwise, the claim will be processed in a few days. 

10.3) Do 3PLs handle shipping insurance?

Some 3PL (3rd party logistics) companies in the world offer shipping insurance whereas others don’t. Out of those that provide, some require to handle the processing of the insurance claims on their own. 

If you still need to discuss some specific queries, don’t hesitate in reaching out to us through our Contact page.