Freight Insurance and Cargo Insurance. What is the difference?
Freight insurance and cargo insurance are two different types of policies that protect your products from loss, damage, or theft. There is a critical distinction between freight insurance and cargo insurance that you should be aware of if your company is involved in international shipping.
Freight insurance has limits on what they will cover while cargo Insurance covers more than just transportation costs. Simply put, freight insurance protects the freight forwarder. Cargo insurance protects the customer.
Let’s start with freight insurance which is one of the many costs that will be included in your shipping quote. Crucially, freight insurance only covers mistakes and negligence on behalf of the forwarder or logistics provider.
Freight insurance protects a freight forwarder from liability for damages or losses to the customer’s goods while in transit. Freight insurance is calculated on weight, and any damage that might occur will need to be proven as caused by the negligence of the company.
In order to protect themselves from lost items in transit, many companies will purchase third-party cargo protection policies which can cover up to $2 million if your shipment is damaged during transport and approved by underwriters as being at fault.
On the other hand, if you want to protect the full value of your shipment, then cargo insurance is an absolute must. Depending on which incoterm applies and where it’s being shipped too, either the shipper or buyer has responsibility for bearing that risk when they ship their goods.
If this doesn’t sound like something you’re willing to take a chance with then make sure that before shipping anything important, whether it’s by truck across town or overseas via container ships-you can rest assured knowing all possible risks have been covered thanks to some basic protection in form of cargo coverage!
The amount of cargo insurance required is determined by the value of the goods being transported. As a result, the full value of the cargo should be insured so that it can be refunded in the event of loss or damage.
The insurer will charge an insurance rate based on a percentage of the cargo’s value as well as the following requirements:
- The freight type
- The freight’s weight and dimensions
- Where the cargo is shipped from and to what route the carrier takes from the port of origin to the port of arrival
In the end, you are free to bear the risks of shipping in any way that your business chooses. However, if you prefer to be safe, we suggest that you invest in cargo insurance to protect your goods for their full value.
We hope that the information gained from this simple read will save you from making the common, but the potentially costly, mistake of assuming that your forwarder’s freight service insurance coverage, also known as “freight insurance,” will be sufficient to protect your assets while at sea or in the air.