If you are in the logistics or the shipping industry, freight damage and loss are an inevitable part of the business. There are high chances that you might face such scenarios throughout your business activity. Hence, you should be aware of the difference between cargo insurance and the carrier's limit of liability. Understanding these terms, their main areas of difference and claim processes can greatly impact your business model.
To understand this term, let us spilt the word into two. The word carrier means the logistic company is legally entitled to transport the shipment from one place to another. Liability means having a legal responsibility towards something. So, the word carrier limit of liability means the maximum amount a carrier or the company is liable to pay in case of damages, losses, or delay in shipment.
The value of this coverage is usually much less than the actual value of the cargo. It may also depend on the content of the shipment and the rate at which the carrier charges for that type of commodity. Liability limits typically cover a percentage of the value lost.
When your consignment is in transit, it is prone to various risks. These risks can damage or cause the loss of your cargo. It is thus always important to consider cargo insurance for your freight. Marine cargo insurance policy, also sometimes known as freight insurance, or goods in transit insurance, is one of the most common insurance types used to protect the value of goods (cargo) from physical damage or theft.
The main aim of cargo insurance is to minimize financial loss if the shipment is damaged or lost. A small amount, in terms of premium, is paid to buy this insurance which also gives the shipper peace of mind.
Carrier limit of liability and cargo insurance may seem similar, but in reality, there are a few major differences between them. If you are having a business in shipping, transportation or logistics, these differences may help you choose the right plan and improve your bottom line. The table below briefly showcases cargo insurance VS carrier's limit of liability.
| Cargo Insurance | Carrier's Limit of Liability |
| Cargo insurance is a specific type of insurance that is bought by payment of premium | Carrier limits of liability is not considered as insurance but is only a supplementary protection |
| Shippers are not obligated to have a minimum cargo insurance | Carriers are legally required to carry a minimum amount of insurance |
| It ensures that the business is protected from unexpected losses or damages | Goods are not fully protected even if the carrier is at fault for damaging the goods |
Let us look at the difference in the claims process in cargo insurance and carrier's limit of liability.
For shipment covered only by carrier’s limit of liability:
For shipment covered by cargo insurance:
Conclusion
Rough weather, accidents, or circumstances beyond your control can lead to damaged or lost cargo. Purchasing a policy for marine insurance online can help providing adequate coverage, seamless procedures, and hassle-free claim settlements.
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