Ensuring that your shipments are covered in the event of damage or loss is extremely important and finding the right freight insurance policy takes time and planning. Just like most insurance, freight insurance is sometimes confusing, but we’re here to explain it so you can make an informed decision. We break down insurance terminology, and what goes into the process of filing a claim. There’s a lot to keep an eye on, but with the right precautions taken before your cargo hits the road (or sky, or sea), you can plan and ship without giving it a second thought.
Freight Insurance and Carrier Liability
Before getting into how freight insurance works, we need to make an important distinction and that is the difference between carrier liability and freight insurance. Carrier liability is the coverage provided by the carrier when damages, delays or losses occur. However, a lot of times the damages discovered fall outside of the carrier’s purview. Freight insurance provides additional coverage above and beyond the carrier’s limited liability coverage.
Why Insure Your Cargo?
There’s insurance for every occasion, and in the world of freight shipping—with freight moving from forklift to forklift, trailer to trailer—carrier liability simply does not have the scope shippers require to provide peace of mind.
The Carmack Amendment dictates carriers legally have a financial responsibility to their customers if freight is damaged in transit, but only to a certain amount. Limited Liability coverage promises cents on the pound of the total weight of cargo if the shipper can prove negligence. Built-in coverage appears as a good enough safety net when planning shipments, but many damages accrued between points A and B often fall outside of the carrier’s scope. For instance, the carrier is not liable for Acts of God (extraordinary weather events, like hurricanes or tornadoes), strikes or riots, shipper/packager error, or if the Proof of Delivery (POD) or Bill of Lading (BOL) was signed clean.
Freight insurance works by essentially serving as an independent insurance policy that can offer protection for the full value of your shipment without the need to prove liability if any loss or damage occurs.
What Freight Coverage Options are Available?
There are a variety of freight insurance coverages available for your freight. It’s a good idea to familiarize yourself with the variations before making your purchase. Not all coverages are built the same—consider what you’re shipping and how it will be traveling. Here are some different classifications:
- All Risks - All Risks freight insurance is there to cover unexpected property damage. However, “all risks” is not to be taken literally. While the coverage all risk provides is extensive, it’s still limited, and shippers should familiarize themselves with the limitations and exclusions of their policy before purchase.
- Annual - This policy stays on the records for a year, and involves sharing in-depth information about the company’s shipments, the maximum value of the freight in any one shipment, and annual turnover. This is perfect for frequent shippers, so you know each freight shipment is taken care of in advance.
- Named Perils - Named Perils insurance covers damages caused by perils that are specifically listed in the policy.
- Open Cover - Open cover policies provide coverage on all shipments, no matter the value, from beginning to end, and have no expiration date.
- Single Shipment - This is a one-time only policy that applies to a single shipment. It covers a shipment from origin to destination and takes the least amount of time to generate.
- Total Loss - Total loss means that your goods are protected in the event of catastrophic events or total loss. It does not cover a partial loss.
It’s typical to have all your bases covered when you purchase insurance. This includes the invoice cost of the freight being shipped, freight costs, and whatever additional expenses are related to the shipping cost (think of it like tipping—10% is okay, 20% is ideal).
If you need solutions for freight insurance, FreightCenter can help. Partnering with a third-party logistics company (3PL) like FreightCenter gives you the leverage to ship like a true pro. Our network of fully vetted freight carriers along with our powerful TMS technology will give your supply chain insights into personalized shipping solutions that fit your budget and our freight experts are standing by to guide you every step of the way.