While most goods arrive at their destination on time and intact, there are still risks inherent in transporting goods. If you received a damaged order or lost goods that could cost you a lot of money, then shipping insurance can help you out. In this article, I will share with you whether you should have shipping insurance or not, how much the cost is and where is the best place to buy one.
What Is Shipping Insurance?
In simple terms, shipping insurance is a protection measure purchased by a shipper to ensure the safety of goods in transit. It can be purchased at the time of shipment through a Courier or a third-party agent, and the cost depends on the cargo value. Shipping insurance can protect the shipper’s rights and interests to obtain the corresponding compensation in case the cargo is harmed by any unfortunate circumstance, usually including theft, damage, improper handling, etc. And the shipping insurance company is financially liable for the goods until they arrive at the designated place of shipment. If you want to learn more about this topic, you can refer to this article: https://sinoinspection.com/china-import-marine-cargo-insurance/
Benefits of Buying Shipping Insurance
Most importers can benefit from shipping insurance. No matter how serious the damage is, the insurance will cover the loss. Here are the two most important benefits of shipping insurance:
Assurance & Security
In the process of transportation, there may be many unexpected and uncontrollable problems with the goods, and in most cases, the damage caused by these problems is irreparable. Shipping insurance provides the importer with the added security of not having to worry about the cargo. Even if anything goes wrong in transit, the insurance company will be responsible for the loss.
Transfer of Risk
Shipping insurance can help you transfer the risk. If your goods are damaged or lost without shipping insurance, then you will be responsible for all costs. But if you have shipping insurance, it is the insurance company’s responsibility to protect your products, and the insurance company will compensate you for the loss of your goods.
Should You Buy Shipping Insurance Every Time?
Many importers think shipping insurance is one of those things that costs you money. Even though it’s not a lot, it’s still going to increase your costs. And the damage doesn’t happen very often, thus it is not necessary to buy shipping insurance. Is that true? Well, the following are my opinions.
When Do You Should Buy Shipping Insurance Every Time?
I suggest that if you have these circumstances, you must buy shipping insurance every time.
It doesn’t matter whether your product is fragile or not, you need to insure your product every time. When you put your product through air shipping, the risk of damage will go up compared to sea shipping.
LCL & LTL
LCL means Less than Container Load and LTL means Less than Trunk Load. Both shipping modes need to mix your products with others’. When your goods are mixed with other goods, there is a higher risk of damage and loss because many different people can have access to the products in the container. Remember to buy shipping insurance.
FCL means Full Container Load. Actually, the risk of damage is very low because when you book a full container, the container will be dropped at your supplier’s factory, then workers load up your products into the container and the door is sealed until the container is delivered to the destination. The entire process has the minimum handling, that’s why the risk of damage is low. However, even in the case of low risk, shipping insurance is still necessary. Because the value of the goods transported in FCL is generally high, as long as there is an accident, you may be unable to continue your business because of the huge loss this time.
When Shipping Insurance Is Not Necessary?
To be on the safe side, you’d better buy shipping insurance every time, except this one. The exclusion that you don’t need to buy shipping insurance is that you buy your product under DDP (Delivered Duty Paid) Shipping term. When your supplier quotes you under DDP term, they are responsible for the product until you receive it. If there is any damage or loss, they need to replace it or you. Remember, only in this case do you not need to buy shipping insurance since the supplier is responsible for your goods until you receive them.
How to Calculate Shipping Insurance Cost?
As I mentioned above, your shipping insurance cost depends on the cargo value. Here is an example to explain how to calculate the cost of shipping insurance.
Commercial Invoice Value: 5000 USD
Shipping Cost: 1500 USD
Other expense: 15% (here takes duty as an example)=5000 × 10%=750 USD
Then you can calculate your shipping insurance cost by this formula:
Insurance Cost= (Cargo Value+0.1Cargo Value) × 0.5%
= (7250+0.1×7250)× 0.5%= 39.875 USD
Thus, in this example, you need to pay 39.875 USD for shipping insurance.
What Is the Best Way to Buy Shipping Insurance?
Of course, you can find an insurance company by yourself to buy shipping insurance, but the best way to buy shipping insurance is to buy it through your freight forwarder. In general, they usually buy insurance from insurance brokers in bulk, thus they can get a better price than you.
In a word, you need to buy shipping insurance for every single shipment except for DDP shipping term. If you still have questions about this topic, please feel free to contact us for help.