What is Freight Insurance & Why Is it Important?

The freight industry is complex, to say the least. There are layers of liability and many different types of insurance to cover the risk. Carrier liability insurance is a prominent form of insurance that the carrier holds to cover loads based on company policies and the qualities of each specific load. The insurance does not typically cover the total value of the freight, and coverage is only possible if the incident was the carrier’s fault. Thus it does not cover all types of risk to the freight. The best practice for shippers is to secure more extensive insurance coverage, especially for valuable or fragile goods. Then if something goes awry, a shipper can file a freight claim and receive compensation for stolen, lost, or damaged goods. This form of insurance coverage is called freight insurance. In this guide, we answer the commonly asked question, “What is freight insurance?” 

Freight Insurance, Defined

Freight insurance, also known as cargo insurance, goods-in-transit insurance, or shipping insurance, is an insurance policy held by a shipper to protect the entire value of the freight from many circumstances. The coverage pertains to natural disasters, theft, loading and unloading errors, infestation, abandonment, fraud, and more.  

Why is freight insurance essential?

Freight insurance is essential because accidents and disasters can and do happen. Shippers must protect against the unexpected, whether it may be an act of nature, cargo theft, fraud, or something else entirely. While carriers do have insurance for the load, the coverage is limited. Furthermore, freight insurance plays a vital role in the supply chain by compensating and protecting businesses that suffer from lost, stolen, or damaged freight. 

Different Types of Freight Insurance

Freight insurance generally falls into two main categories:

  1. Land cargo insurance provides coverage for goods moved over the road and typically only applies to domestic shipping. 
  2. Marine cargo insurance protects goods shipped via air or water. It applies to international shipping and is crucial because shipping internationally is more complex than moving freight domestically.  

Different Types of Freight Coverage

There are several different types of freight coverage to ensure the investment in your load is protected: 

All Risk Policy

An all risk policy, sometimes referred to as Type A insurance, protects against external risks. It compensates for damages to freight caused by natural disasters, negligence, poor packaging, customs rejection, abandonment, loss of use or market, geopolitical events, failure to pay or collect, and more. It is designed for approved or general goods. 

Named Perils Policy

A named perils policy, sometimes referred to as free of particular average, is most known for protection at sea against damage caused by the ship. Covered damages include collision, sinking, derailment, non-delivery, weather, fire, and theft. Named perils policy also covers land perils that are also beyond human control, like earthquakes and weather events. It is commonly taken out for used merchandise, waste materials, and bulk cargo. 

Warehouse-to-Warehouse Policy

The warehouse-to-warehouse policy is standard in the business-to-business (B2B) supply chain. It protects goods as they travel from the cargo ship to the warehouse.

Contingency Policy

A contingent policy is a coverage plan held by freight brokers to compensate for a claim if an issue arises in transit and the carrier refuses to pay. 

Duty Insurance

Duty insurance eliminates duty and tax requirements for goods partially damaged in transit. While lost goods do not incur tax, the duty on damaged goods can be significant. The insurance is usually around one-third of the cargo insurance rate and offers essential coverage for international loads.  

General Average Policy

A general average policy is less common than the other policies described here, but it is important to mention due to its unique structure. The policy establishes shared responsibility for damaged cargo between all stakeholders involved in the shipment. 

Partner with a Quality Logistics Provider 

The best way to avoid freight headaches is to work with a trusted logistics provider. First Star Logistics is a unique asset-based global brokerage company with over 60 years of experience. We take great pride in meeting the needs of our customers, carriers, brokers, and agents. For our customers, we understand that efficiency, safety, and reliability are crucial. We use fast, cutting-edge technology to ensure a satisfactory experience with our specialized shipping services. We support our carriers with the technology, management, resources, and support they need to ensure safe, on-time delivery for shipments. We provide our agents and brokers with a dedicated management team and proprietary software that empowers our employees to succeed. 

To work with First Star Logistics, contact us today!