What is Shipping Insurance and Why Do You Need It?

According to DNV’s latest report, the percentage of maritime accidents has drastically increased by 42% from 2018 to 2025. This especially addresses the need to have a solid insurance plan to protect yourself from huge losses that may arise due to such hazards.

Every leading carrier offers both free and paid insurance that helps businesses operate without stress while transporting shipments. Ensuring a safety net is indeed necessary in case of high-value and sensitive shipments.

This blog talks about what shipping insurance is, its importance, how carriers offer insurance, and so on.

What is Shipping Insurance?

Shipping insurance is a service offered by carriers and third-party agents to protect businesses from facing losses due to issues like theft, accidents, mishandling, etc. that arise during the transit of goods. Regardless of whether the shipping is done by land, air, or sea, shipping insurance provides protective cover that helps mitigate losses during such drastic events.

In the event of unforeseen circumstances, the carriers will provide the businesses with the insured sum on the declared package. This will help both businesses and customers to have peace of mind.

Why is Shipping Insurance Important?

When a package is shipped to the customer after following every step in the packing process, but in some cases, it might end up damaged or theft.

In this case, the business owner can find a resolution in two ways: One, the business can refund the customer’s loss from their pocket, or another way is to not pay the customer for their loss and save up the money.

In the first case scenario, the business will go into a loss every time such a situation happens, and in the latter, it will irritate customers and result in them never shopping with you ever again.

When you have shipping insurance, you will not be required to choose between these options. The shipping insurance will provide a protective shield and help you deliver seamless shipments.

Shipping insurance can be taken for the following reasons:

Shipping insurance is taken for the obvious reason of security and protection.
The convenience that shipping insurance brings to the table.
Customer loyalty and satisfaction are assured when shipping insurance is in place. Customers needn’t be worried when there is a hazard or complication.
When the product is delivered on time without any interference, it will help enhance the company’s reputation.

Who needs Shipping Insurance?

Let’s understand strategically who needs shipping insurance:

High-Value Items: If you are a business that deals with items that are expensive, then you will need to have insurance for your shipment. The loss of even a part of the shipment can cause a huge dent in your profits. So, ensuring this will help in saving you from a probable loss.
Easily Damaged Goods: Not every product is sturdy and damage-free. If you are a business that sells fragile products, then you will need to have shipping insurance. As these goods are easily susceptible to damage, it is necessary to have shipping insurance.
High Volume of Orders: If yours is business continuously ships packages, then the chances of mishandling are possible. Also, if the value of the shipment is low, then you will not be able to cover the insurance costs. So, make sure to assess your average value of orders.
Not ready to deal with uncertainty: Some businesses go ahead and adopt shipping insurance to have peace of mind while shipping products.

What to look for while choosing a Shipping Insurance?

Leveraging Technology

As technology is rapidly expanding and evolving, it’s ideal to choose a provider that uses it effectively. The insurance providers should be structured and use APIs, which make the entire process flow easy. Starting from insurance rates to getting the claims. The automation incorporation is indeed a solid part to look out for.

Coverage

Different insurance providers have different restrictions when it comes to coverage. Make sure to read through what providers restrict. Some companies do not provide services for a certain kind of product, or against porch theft. Read the fine print before choosing your insurance provider.

Flexibility

The insurance provider should give maximum flexibility in services. Restrictions on certain business models or in carriers can affect the business in the long run.

Easy Claims

The claim process and the reimbursement should be easy. If the insurance providers take a long time to reimburse, it might eventually affect the cash flow and the stability of the business.

How does Shipping Insurance Work?

Before knowing what each shipping carrier or third-party insurer offers, it is necessary to understand how the whole process works.

Choosing Coverage

Picking up shipping insurance policies should not be taken lightly. It’s essential to pick something that matches the nature of your shipment. The coverage changes according to your needs, say, if you are shipping high-value items or shipping small items in bulk.

Declaration of Value

Declaring the value of the goods you are sending is very crucial in shipping insurance. This will help in understanding the limit of the insurance coverage. If you quote it lower, then you will be underinsured, and if you quote the declared value higher, then you will result in getting higher premiums without any additional benefits.

Premium

The premium of the shipping insurance will directly depend on the declared value of shipments. Shipping route, carrier reputation, and item vulnerability will all determine the amount of premium.

Filing a Claim

A claim needs to be raised when a shipment faces mishandling, theft, weather-related damages, etc. This process requires the submission of relevant documents, evidence, shipping receipts, photos of damages, etc., to process.

Reimbursement of Claim

If the claim is approved, then the carrier or the third-party insurance provider compensates the amount of loss. The reimbursement will help in easing the business and not obstruct its normal course of business because of a small mishap.

What are the different types of insurance?

You can find three types of options to choose from for your shipping insurance:

Carrier-provided insurance: This is mostly provided by the shipping carrier. Most of the shipping carriers offer a minimal amount for insuring the package, for which you need to pay extra.

Third-party insurance: This type of insurance will leave you fearless because it takes care of all the matters concerning the package insurance upon loss, damage, or when stolen. The claim processing is quicker when it comes to third-party.

Self-insurance: This covers insurance for parcels that are sent through carriers and provides broader protection for lower rates.

How do Carriers and Third-Party Providers offer Shipping Insurance?

Most of the shipping carriers provide shipping insurance as a value-added service. The services vary from carrier to carrier. You can choose to purchase insurance either from third parties or from the shipping carriers. Now, let’s see what each of them has to offer:

The maximum insurance coverage offered by USPS is $12.25, with an additional $1.95 for every $100. The maximum liability is $5000.
FedEx offers maximum shipping insurance of $4.20 plus $1.40 for every additional $100 of declared value.
UPS offers shipping insurance for $1.15 per $100 declared.
Shipsurance offers affordable premiums depending on the item and the declared value of shipments. They offer full coverage and discounted coverage for carriers you already use. They say that it takes only 5 minutes to file a claim.
Route ensures that the shipping losses will not be part of your balance sheet. They have protected around $12B worth of merchandise. The average order value and annual order volume will determine your insurance cost.
EasyPost Shipping Insurance offers full package protection, and the insurance pricing is 1% flat rate of the declared product value.
ParcelGuard.com offers additional insurance than what the carriers are providing, and you can purchase it directly from Stamps.com. The insurance fee is included in the shipping cost.

ELEX WooCommerce Shipsurance Add-On for Shipping Method Plugins

One of the popular third-party shipping insurance providers is Shipsurance, which offers affordable insurance options. You get the insurance claims done quickly. The good news is that it is easy to integrate Shipsurance into your WooCommerce store using the add-on ELEX WooCommerce Shipsurance Add-On for Shipping Method Plugins.

Conclusion

Shipping insurance is a must-have for businesses, so that they can be tension-free while shipping products to customers. While most of the leading carriers offer shipping insurance, it is necessary to understand whether their offerings match your needs.

Choosing a shipping insurance provider is very crucial to derive maximum benefits.

FAQs

What is shipping insurance?
Shipping insurance covers the value of a package if it’s lost, damaged, or stolen during transit.
Is shipping insurance included by default?
Some carriers like USPS, FedEx, and UPS offer limited insurance (up to $100) by default, but extra coverage costs more.
When should I consider buying shipping insurance?
It’s recommended for high-value, fragile, or international shipments where the risk of loss or damage is higher.
What’s the difference between carrier and third-party insurance?
Carrier insurance is offered by the shipping company, while third-party insurance often provides cheaper rates and faster claims.
How is the cost of shipping insurance calculated?
It’s usually based on the declared value of the item and the destination of the shipment.