Cargo insurance, a form of inland marine insurance, is an important part of protecting the global supply chain. It pays the value of shipments, up to coverage limits, when shipments are lost, stolen, or damaged. Certain businesses that ship goods need cargo insurance, but those that ship infrequently can get coverage for single shipments. Small business owners typically insure cargo through the shipper. Cargo insurance cost is usually 10% of the value of the shipment.
Key takeaways
- Cargo insurance is a type of inland marine insurance. It is also referred to as freight insurance.
- If you own an import/export company or are a wholesaler, distributor, or manufacturer, then you should consider cargo insurance. If you’re a trucker who transports food, medicine, and other items daily, then you need cargo insurance to protect against unexpected losses or damages that occur during shipping.
- The cost of cargo insurance factors in the value of the shipped items, the shipping route, and any history of loss.
Freight insurance and cargo insurance are different names for the same type of insurance. Cargo insurance is a type of property coverage called inland marine insurance.
Historically, inland marine covered shipments made by land but, over time, the coverage grew to represent shipments made by air and sea as well. Hence, cargo insurance, sometimes called freight insurance, was created as a type of inland marine insurance.
Who Needs Cargo Insurance?
Import/export companies, wholesalers, distributors, and manufacturers most likely need cargo insurance through a carrier.
Truckers who transport food, medicine, and other items daily need freight and cargo insurance to be protected against unexpected losses or damages incurred during shipping.
How Freight & Cargo Insurance Works
While carriers are liable for damage to your shipment, they usually only have to pay the amount of your loss. With this, courts often subtract the market value of the damaged goods from the market value they would have had if they arrived unscathed. In addition, carriers are not responsible for associated costs such as lost income.
Pro tip: While trucking companies are required to have their own set of liability insurance policies, it is best to get insurance coverage for your shipment from an insurer with freight and cargo insurance experience. Providers and agents with experience in multiple transportation modes, customs brokerage, and international shipment have better insight into your risks.
Freight & Cargo Insurance Costs
To calculate the cost of cargo insurance, start with the value of the shipment. The policy rate will fluctuate depending on the carrier.
Premium = (Insured value × Policy rate) + 10%
Freight & Cargo Insurance Coverage for Single-shipment Costs
Many insurers have minimum premium requirements for stand-alone cargo insurance. This requirement is the amount you must pay, regardless of how often you ship cargo, and it’s one reason small business owners who either rarely ship items or ship small quantities get cargo insurance through a freight carrier, broker, or forwarder.
Other factors that impact freight insurance costs include:
The type of goods you ship can have a major impact on your cargo insurance costs. Shipping products that are inherently risky, valuable, perishable, or easy to steal usually increases cargo insurance costs.
Here are a few examples:
- Inherently risky: Flammable, corrosive, or explosive materials
- Valuable: Products with a high cost value, such as large machinery or major electronics
- Perishable: Items such as food or certain pharmaceuticals
- Easily stolen: Small or attractive items like smartphones, auto parts, or luxury items
Insurance applications almost always include questions about prior losses. Insurers use that information to determine how risky your business is to insure. They compare your losses to similar businesses’ and will adjust your premium to cover the cost of potential claims.
Most cargo insurance companies only consider freight-related losses, but some may look at other claims to determine your risk. This makes good risk management (like proper packaging) important because it can reduce the likelihood of claims.
Underwriters consider certain routes riskier than others—and sometimes, this is due to geography. Routes through areas that are mountainous, icy, remote, or otherwise treacherous can increase your rates.
Your rates may also increase if your shipment has to go through areas known for piracy or theft. Political instability in either the country of origin or the final destination can increase risk and your premium as well.
Freight & Cargo Insurance Coverage
Federal law requires trucking companies to carry some carrier liability insurance, but the minimum-required coverage may not be enough protection for your shipment. This is why agents often recommend purchasing additional cargo insurance. It typically covers external causes of loss and damage to your shipment.
It is best to find an insurance agent or provider that is experienced in managing cargo insurance as it will be able to address the following:
- Responsibility for insuring the goods: Whether the buyer or seller will be the one to insure the goods
- Point of transfer of the title to the goods: At what point the goods will be transferred from the seller to the buyer—which may depend on the kind of goods and the length of time it takes to ship them
- Insuring terms: The insuring terms as defined in their respective insurance policies
- Location of insurance company: Important if a United States importer asks the seller to provide insurance as the insurer may be located overseas, which could make claims processing more complicated
What Freight & Cargo Insurance Doesn’t Cover
Like any type of insurance, freight insurance doesn’t cover everything. For instance, cargo insurance doesn’t cover carrier liability. As the shipper, you don’t need liability coverage—the carrier is responsible for ensuring your shipment gets where it’s going. Additionally, freight and cargo insurance policies have exclusions. These are policy provisions that eliminate coverage for certain perils.
Individual freight insurance policies typically exclude:
- Damages caused by your inadequate packing: If water seeps in and corrodes your shipment, the responsibility for the damage is on you.
- Damages caused by faulty goods: If the carrier can show your product has a flaw that caused the damage, then they are not responsible for it.
- Certain types of freight: Hazardous materials, certain electronics, or other types of cargo may be excluded, depending on your insurer.
- Certain modes of transportation: Some freight insurance may exclude trucking. Other insurance may exclude cargo ships, freight trains, or airplanes.
The insurance industry does not have a standard cargo insurance form, so exclusions and inclusions vary widely.
Freight & Cargo Insurance Coverage Types
Cargo insurance can be purchased for a single shipment as a standalone policy, or as part of a larger insurance program. Depending on your business, you may ship your goods domestically, internationally, or both. You may use trains, trucks, cargo ships, planes, or a combination of these. As a result, cargo insurance has a lot of variations, which fall within three main types of cargo insurance.
This is the most common type of cargo insurance. As the name implies, all-risk insurance covers a very broad category of risks. Oftentimes an all-risk policy will cover any external causes of damage, except for named perils outlined in the policy. However, all-risk cargo coverage does cover any damages caused by any event that are not specifically excluded in the policy.
Some common exclusions in all-risk freight insurance coverage are:
- Improper packing
- Abandonment of cargo
- Rejection of goods by customs
- Employee dishonesty
- Loss due to the nature of the product
- Loss due to delay
Free from particular average (FPA) coverage is a clause that frees your insurer from covering losses in most situations. This is sometimes called a total loss only (TLO) policy because you only collect if you suffer a total loss. Generally, it only covers events beyond a person’s control.
For example, FPA coverage for marine insurance usually pays for total losses stemming from:
- Stranding
- Burning
- Sinking
- Collision
- Errors in vessel management
- Boiler bursts
- Defects in hull or machinery
The final common type of cargo insurance is general average coverage, which is specific to ocean marine coverage. When you transport goods by sea, you share responsibility for the boat and all its cargo with the shipowner and other cargo owners. Essentially, if the boat or another person’s cargo is damaged to save the ship, you share in that loss with the rest of the people involved.
You may be responsible for a general average if the captain needs to abandon some cargo after the ship runs aground or is caught in a storm. Sometimes, the shipowner won’t even release your cargo until you’ve paid your portion. With general average coverage, your portion is paid by the insurer.
Best Freight & Cargo Insurance Companies
- Tivly: Best for finding freight insurance quickly
- Travelers: Best for customizing inland marine insurance
- Roanoke: Best for transporting items across borders regularly
- CargoCover: Best for businesses that ship overseas
- The Hartford: Best for businesses that want additional coverages
Tivly: Best for Finding Freight Insurance Quickly
Pros
- Coverage available nationwide
- Motor truck cargo, general liability, business owner’s policy (BOP), and other coverages available
- Application form is quick and simple
Cons
- No online quotes
- Does not handle any type of losses in-house
- No 24/7 call center
Standout Features
- Tivly is a two-sided marketplace that helps businesses find the right insurance carrier.
- Since it works with over 200 different providers, the network is one of the most expansive available and is a great option for a small business in need of cargo insurance.
- It offers cargo insurance for dump trucks, box trucks, cargo vans, and refrigerated or heated trucks.
- Coverage options beyond cargo insurance include semi-truck and commercial truck insurance.
- If you work in a risky industry or have a claims history, you have a greater chance of finding insurance by working with Tivly’s large network of providers.
Financial stability: Tivly works with top-rated carriers like Liberty Mutual and Progressive. Liberty Mutual’s AM Best rating is A (Excellent), while Progressive’s AM Best rating is A+ (Superior).
Travelers: Best for Customizing Inland Marine Insurance
Pros
- Dedicated inland marine claims team
- 24/7 claims and customer service available
- Numerous free resources available to small businesses
Cons
- No online quotes
- Much of the policy management is still handled through a local agency
- Complaints are slightly higher than expected
Standout Features
- Travelers offers an all-risk policy for ocean marine importers and exporters. The policy is available to businesses with up to $20 million in annual international exports.
- Inland marine cargo insurance is available through Travelers’ custom Pak® solution for BOPs, which can be customized to fit your business.
- The insurer maintains an Inland Marine Network with dedicated specialists and risk assessment to help minimize risk and decrease the chance of a loss.
- It offers coverage for freight forwarders, warehouses, and logistic service providers.
Financial stability: Travelers, with over 100 years of insurance experience and a global footprint, has the financial reliability you want in a carrier. AM Best rated Travelers an A++ (Superior).
Roanoke Insurance Group: Best for Transporting Items Across Borders Regularly
Pros
- Available in the US and Canada
- Has the support of Munich Re
- Has been offering insurance in this field since 1936
Cons
- Can only file a claim via fax or email
- Does not handle claims in-house
- Hours are Monday to Friday, 8:30 a.m. to 5 p.m.
Standout Features
- Roanoke offers insurance to businesses that ship between the US and Canadian borders.
- You can purchase standard cargo insurance, US Custom Bonds, or transportation bonds.
- The insurer offers ATA Carnets to move goods between countries more easily.
- Similar to garagekeepers insurance, Roanoke offers cargo legal liability insurance for operators of a warehouse.
Financial stability: Roanoke Trade is part of Munich Re, a global specialty and reinsurer. Munich Re’s AM Best rating is A+ (Superior).
CargoCover: Best for Businesses That Ship Overseas
Pros
- Technical support available 24/7
- Insurance certificates can be downloaded or emailed
- Policy includes General Average coverage
Cons
- You must register first to get a quote—and may still need to speak to a broker
- Does not handle claims directly
- Broker support only available during standard business hours
Standout Features
- CargoCover also offers transportation insurance for freight forwarders (NVOCC), third-party logistics providers (3PLs), common carriers (ocean and truck), and load brokers.
- In addition to freight insurance coverage, small business owners can get quotes for commercial property, crime, and motor truck cargo liability policies.
- Coverage is for full value declared on the items without any deduction for a bill of lading.
- Customers can get real-time data and monitor the progress of a claim through its account system.
Financial stability: CargoCover is an industry-leading cargo insurance broker. The company offers cargo insurance policies underwritten by quality insurers, including CNA and Liberty Mutual. AM Best’s rating of CNA is (Excellent).
The Hartford: Best for Businesses That Want Additional Coverages
Pros
- Will extend defense costs that are outside of limits
- In-house claims handled by trained specialists
- 24/7 call center for claims
Cons
- Quotes are obtained through an email form
- If application is accepted, quote can take up to 16 business hours
- Targeted toward midsize businesses
Standout Features
- It offers coverage for cargo in transit anywhere in the US, Canada, and Puerto Rico.
- It has temporary storage coverage—including unscheduled stops.
- It has fictitious pickup and employee dishonesty coverage included.
- Commercial truck, fleet coverage, and other small business insurance policies available.
Financial stability: The provider’s reliability is particularly important if you have a claim—and The Hartford has centuries of experience. The Hartford’s AM Best rating is an A+ (Superior).
Bottom Line
Business owners who ship only occasionally or ship low quantities of products can usually get the best deal on cargo insurance by working with their freight broker. However, manufacturers, wholesalers, importers, and exporters may need their own cargo insurance to be fully protected.
Tivly is a commercial insurance marketplace that helps business owners connect with the provider that fits their business needs. It offers a large variety of business policies, including cargo insurance. To get a quote, fill out a quick contact request form. That same day, a representative will contact you to match you with a provider.