What is Freight Insurance?

Freight insurance is a type of coverage that protects businesses and individuals against financial loss or damage to goods during transport. It gives you peace of mind that the value of the cargo is reimbursed in case of accidents, theft, natural disasters, or other unforeseen events.

In 2024, freight insurance premiums for marine cargo alone reached $22.1 billion. Carriers are legally required to have a certain level of liability insurance, but it often falls short of the cargo’s full value. To make sure you’re covered in the case of damage or loss, choose freight insurance, which can be tailored to your needs and provides a higher level of coverage.

Need peace of mind and financial security for your next shipment? Get in touch with our freight forwarder team at Twings Supply. We’re ready to protect your precious cargo!

What Types of Freight Insurance are Available?

Freight insurance is split into three types: cargo insurance, liability insurance, and all-risk insurance. Each insurance covers different components.

Cargo Insurance

Cargo insurance specifically covers the goods being transported. It protects against damage, theft, or loss during transit, whether by land, sea, or air. This type of insurance can be configured according to the nature of the goods, like fragile, perishable, or high-value items.

Liability Insurance

Liability insurance covers the carrier or freight forwarder’s responsibility in the event of damage or loss to the cargo. It’s designed to protect the service provider rather than the shipper. This coverage usually excludes damage caused by natural disasters and other uncontrollable factors.

All-Risk Insurance

All-risk insurance is the most comprehensive protection, covering nearly all potential risks to the cargo during transit. This includes damages caused by mishandling, weather-related incidents, theft, and more.

What are the Different Freight Insurance Coverage Levels?

Freight insurance coverage is usually separated into three levels of cover: basic, broad, and all-risk. Each one is designed to offer a specific type of protection. Consider your needs to make sure you choose the right freight insurance for your shipment.

	Basic Cover	Broad Cover	All-Risk Cover
What’s Included?	Minimal protection for lost or damaged goods	Includes extra coverage for non-delivery and theft	The highest level of protection, covering all risks except specified exclusions
Best For?	Lower-value goods	Mid-value goods; balances cost with value	Recommended for high-value or fragile shipments

What’s Included in Freight Insurance Coverage?

Freight insurance typically includes cover for damage, theft, loss, natural disasters, and machine or human error (e.g., loading and unloading). While each policy has slight differences, let’s take a look at what freight insurance policies usually cover in detail:

• Physical Damage: Coverage for damage caused by accidents, improper handling, or external events like storms during transit
• Theft or Loss: Coverage for goods stolen or lost while in transit, whether through hijacking, misplacement, or container losses at sea
• Natural Disasters: For damages due to events like earthquakes, hurricanes, or floods that occur during transportation
• Loading and Unloading Incidents: Protection for goods damaged during loading or unloading operations
• General Average: Coverage for shipper contributions in maritime incidents where cargo and vessel losses are shared among stakeholders

What’s excluded from Freight Insurance Coverage?

Freight insurance policies often exclude coverage for delays, improper packaging, war and terrorism, natural wear and tear, and government interventions. No matter which level of coverage you purchase, let’s review what you’re likely not covered for:

• Improper Packaging: Loss or damage caused by inadequate or faulty packaging
• Delay Costs: Financial losses due to delayed delivery, like missed deadlines or penalties
• Acts of War or Terrorism: Incidents resulting from war, terrorism, or political unrest are usually not covered unless explicitly added through a special clause
• Wear and Tear: Damage due to natural wear, spoilage, or inherent vice (e.g., perishable goods deteriorating without external causes)
• Government Actions: Losses caused by confiscation, seizure, or detention by government authorities

How Much Does Freight Insurance Cost?

Freight insurance premiums are calculated as a percentage of the cargo’s declared value, ranging from 0.1 to 2%, depending on these variables:

• Cargo Value: Higher-value goods result in higher premiums
• Type of Goods: Fragile, perishable, or hazardous items may cost extra
• Mode of Transport: Insurance for sea freight often costs more than road or air freight due to increased risks
• Destination: Long-distance or high-risk routes increase premiums
• Coverage Type: Comprehensive policies, like all-risk insurance, are more expensive than limited coverage options

For an accurate quote on how much your specific freight insurance cover would cost, contact our team at Twings Supply.

Who Pays for Freight Insurance?

The responsibility for paying freight insurance depends on the agreement between the buyer and seller. It’s typically determined by the International Commercial Terms (Incoterms) used in the transaction, and it should be clearly outlined in the shipping contract to avoid confusion.

• Under Cost, Insurance, and Freight (CIF), the seller is responsible for arranging and paying for insurance until the goods reach the destination port.
• Under Free on Board (FOB) or Ex Works (EXW), the buyer pays for freight insurance once the goods are handed over to the carrier.

How do I make an insurance claim?

To file a freight insurance claim, follow these steps:

1. Inform the insurance provider as soon as you discover the loss or damage.
2. Collect photos, videos, or written records of the damaged goods or packaging.
3. Submit the necessary documents:
   1. Insurance policy or certificate
   2. Commercial invoice
   3. Bill of lading
   4. Survey report (if applicable)
   5. Claim form detailing the incident
4. For significant losses, you may need an independent surveyor to assess the case.
5. Keep in touch with the insurer to get a timely resolution and payment.

FAQs on What is Freight Insurance?

How do I get my cargo valued?

To calculate the value of the goods in your cargo (required for getting shipping insurance), add:

• Product Value: The base cost of the goods as stated on the commercial invoice
• Shipping Costs: Any transportation fees paid for the delivery of the goods
• Potential Duties and Taxes: Estimated import duties or taxes that may apply
• 10–20% Extra: To account for unforeseen costs, such as re-shipping or emergency fees

What documents are required to purchase freight insurance?

To buy freight insurance, you’ll need to provide the commercial invoice, bill of lading (BoL), packing list, and the insurance application form for the carrier. Check the carrier’s website beforehand to make sure you’re not missing anything.

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