Cargo Insurance: Facts to be Considered!

Cargo insurance, also referred to as Freight Insurance, is an absolute necessity when it comes to protecting a shipment while transit. Cargos can be exposed to a multitude of risks including road accidents, theft, damage, natural perils, improper stowage by the carrier etc. And most of the time, the carrier pays a limited portion of the loss, leaving the rest of the burden on the cargo owner. This is the reason you should consider Cargo Insurance!

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What’s Cargo Insurance?

To provide optimum protection to the freight, having cargo insurance is necessary. This insurance provides financial protection against physical loss or damage to freight during a shipment. The damage could be due to an external cause whether by land, sea or air. Usually, this insurance covers the transportation of cargo carried out domestically or internationally. However, it is highly recommended for international trade.

Why Do You Need Cargo Insurance?

Your business needs cargo insurance to mitigate the risks associated with exporting or importing products. The cargo can be of anything such as wares, property, merchandise, goods etc. The risk continues with the ordinary form of transit. Here transit insurance can be useful. If a vessel is rented for transportation of the cargo, the money needs to be paid. However, in case the goods or properties are not delivered safely, the carriage can’t earn the freight.  Pre-paid freight to be paid in advance is at the risk of the owner of the cargo who includes it in the value of the goods that are insured under freight or cargo policy.

But when the freight payable on the delivery of the product at the destination, is at the risk of ship-owner with the insurable interest on it and hence should insure it with cargo insurance.

Cargo insurance includes damage or loss caused by war, rebellion, revolution, civil war, insurrection or civil strife or any hostile act, seizure, capture, arrest, general average and salvage charges, strikes, riots, restraint detainment etc.

Advantages of Cargo Insurance

There is no denying that most of international cargo transportation is done by sea route. A prodigious amount of sea transportation involves container vessels. If you’re into import or export business then you can’t deny the importance of delivering the products in its appropriate condition. Despite investing a considerable chunk of money in the business, most of the business owners often underestimate the importance of freight insurance and thus suffer from losses. But those who are into it can enjoy the below benefits:

Cargo insurance offers financial protection against-

  • Damages due to inappropriate packaging
  • Invasion
  • Abandonment of cargo
  • Customs rejection
  • Dishonesty of employees
  • Damages due to Collision
  • Damages due to bad weather, sinking, derailment
  • Non-delivery
  • Theft
  • Fire damage
  • Explosion
  • Riot, strikes, malicious damage
  • Storm, flood, cyclone, inundation
  • Earth-quake, burglary, accidental physical loss or damage
  • Impact by any rail /road vehicle

Types of Risk Covered under Cargo Insurance

Following aspects are covered under cargo insurance while transporting your cargo by land, sea, or air:

All Risk Coverage

This cargo insurance covers any type of physical loss to the cargo due to an external means. However, it comes with certain exclusions as well. The list of coverage usually includes collision, train derailment, truck overturning, theft, improper stowage, acts of God such as earthquake, lightning etc.

Free of Particular Average

Also referred to as Named Peril policy, this cargo insurance safeguards the shipment against collision, burning, sinking, train derailment, acts of God and so on. However, it doesn’t cover theft. Most importantly, the shipper only pays for significant losses.

Shipment-by-Shipment Policy

With Shipment-by-Shipment insurance you can protect the carrier which is shipping your products or goods. However, there are certain exclusions including illegal act, flaws in the vessel, acts of war, an act of God etc.

Types of Cargo Insurance Policies

Cargo or freight insurance can be taken for domestic as well as international transportation. However, it is difficult to standardize without the cooperation of states and countries due to the changing nature of cargo insurance. Nevertheless, this can be categorised into the following types:

  • Land Cargo Insurance: This insurance is designed for covering land related transportation including trucks and other vehicles. The coverage is extended to theft, collision and other damages due to an eventuality. This insurance can be taken for domestic transportation and operates within the boundaries of a nation.
  • Marine Cargo Insurance: This insurance is meant for the transportation of goods carried out in the sea or by air. The coverage is offered for the damages due to loading/unloading of cargo, piracies while sailing, weather contingencies or other related perils. Mostly, this insurance is beneficial for international transportation. Under marine cargo insurance, you may find a range of policies as per the requirement and nature of the consignment. Here you go:
    • Open Cover: This policy includes all the marine sending to a client for the period of 12 months and the voyage involved is export or import.
    • Specific Voyage Policy: This policy is designed for the firms that require insurance coverage for a voyage. It is beneficial for them who require marine cargo policy in the duration of their trade.
    • Duty Insurance: In case of imported goods, customs duty is applicable once the goods arrive at the port of destination. But in case of damage, the CIF value wouldn’t suffice the actual value of the goods as custom duty has already been charged. Duty insurance comes in handy in covering those additional costs if the goods are damaged during the transit from the port to the actual destination.

So, Are You Going to Consider Cargo Insurance?

Now that you are explained with cargo insurance and how this insurance works, we believe you realise its importance. If you are into an export or import business that requires ample transportation of goods via sea, road, or train, you should definitely say ‘yes’ to cargo insurance, as it safeguards your goods against the untoward events. What would you do if an important shipment of your company is lost or damaged? What if a shipment being transported via vessel and the ship sinks? Or what if your very important freight meets with an accident? Well, you or your company will be responsible for a share of the loss.


Written By: PolicyBazaar - Updated: 16 August 2021