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Answering a Common Amazon Question: Why Should I Get Shipping Insurance?

Nicasio Co III
  •  
  •  
November 27, 2020

When it comes to shipping packages, certain situations may arise that are out of our hands. Some of these situations are: packages being lost during transit, damaged parcels, or stolen orders. These situations affect our business because customers would have a negative impression of us. You may have heard of the term shipping insurance. You might have asked yourself the question, "should I get shipping insurance?

Based on Statista, 30% of online packages were returned to merchants due to faulty or damaged goods, and 18% due to delivery issues. Customers prefer to shop at Amazon due to its fast delivery service. Having a delayed and damaged product can affect your shop's performance. Hence, cargo insurance is essential to protect your goods. In this article, we'll talk about seven reasons why you should get insurance for your packages.

What Does Insured Shipping Mean?

Before we dive into why you should get cargo insurance, let's tackle what it means. Insured shipping means the shipper is reimbursed for goods that were lost, damaged, or stolen during shipment. The amount refunded shall depend on the declared value and coverage. We'll discuss it more later. 

Reason #1: More containers are getting lost at sea every year

Each year, containers are getting lost at sea due to catastrophic events. Based on the World Shipping Council, 350 cargoes were lost at sea in 2011, while in 2019, there was approximately 16,000 lost cargo. Although the number of lost shipments is quite high in 2019, you may be happy to know that it's only 1% of the total cargoes shipped each year. 

The estimated number of lost cargoes vary each year due to the reporting of lost cargoes. Lost cargoes are only reported upon inventory check or if they contain hazardous materials. Moreover, lost cargoes are due to negligence on the shipment and handling of the packages while en route to the destination. 

Some of these common forms of negligence are the following:

  • Failure to properly weigh the package, which can result in the containers being incorrectly stacked. Hence, it may fall overboard during transit. 
  • Failure to secure the bindings to keep the packages in place
  • Improper loading of goods resulting in them moving around while in transit. 

Having cargo insurance can protect you from these events. 

Reason #2: Packages Arrive in Poor Condition 

Based on a study conducted by Statista on UK shoppers, 7.4% of packages are damaged upon delivery. Another study conducted says that 1 out of 10 packages arrive damaged on the customer's doorsteps. Based on the UK P&1 Club, which is an organization that represents shipowners, they found out that 25% of cargo claims were from physical damage to the goods, while 9% was due to theft. 

Some of the reasons for damaged goods are the following: 

  • Overloading
  • Improper packaging of products. 
  • Lack of export packaging.
  • Fragile cargoes are not correctly handled.
  • Improper use of securing equipment. 
  • Poor condition of container.
  • Lack of effective container inspection.
  • Wrong choice of box.
  • Lack of clear carriage instructions.
  • Wrong use of temperature controls.
  • Heat sensitive cargoes are packed near heated tanks or in direct sunlight.

These scenarios damage your goods, which can greatly affect your relationship with your customer. Most of the time, they will leave negative feedback on your store. Having negative feedback can decrease the number of your customers and ruin your chances of creating a good impression on your customers. To avoid this scenario, you need to add cargo insurance to your packages. 

Reason #3: Cargo theft kept increasing every year

The number of packages being stolen are increasing each year. It's more rampant during peak seasons, such as Christmas and Halloween. Based on Statista, around 2.8 million worth of goods were stolen during shipment in 2018. Electronics and clothing were the most commonly shipped items. Hence, these were strongly targeted by thieves. 

Reason #4: Fortuitous events may happen

We mentioned earlier that catastrophic events play a part in lost shipment. These events can lead to a shipload of cargo being lost in transit or even while in the warehouse. One example is the Tianjin explosions in China's port. In case you encounter these catastrophic events, you'll probably regret not getting insurance for your packages.  

Reason #5: Limited carrier liability

You see, carriers' liability in case of loss is limited. Their responsibility can be based on the contract or by law. Most goods with a declared value of $100 or less shall be covered by insurance from the carrier, but goods with a declared value of more than $100 are not. High-value items are at risk of loss, theft, or damage. With this, the importance of having insurance is a must.

Reason #6: Peace of Mind

By having insurance, you don't have to continually worry about your packages once you hand them over to your shipping company. It will provide protection against damages, theft, or loss. In case everything goes wrong, you won't have to worry about any expenses or loss on your customer's end. The insurance shall help you calmly sleep at night, knowing you and your customer's interests are protected. 

Reason #7: Avoid any financial loss

The insurance company shall be the one to pay your customer for the damages if their goods were stolen, damaged, or lost in transit. The money spent by your customers shall be reimbursed while you won't have to worry about any expense since the insurance company already handled it. If you don't have insurance, you would be scratching your head because of the financial loss.

Getting insurance for your packages

After highlighting the reasons why you should get insurance, we'll talk about the different coverage, costs, and types.

What does shipping insurance cover? 

Before you start making a claim, you need to know if it is covered by insurance. Usually, shipping companies cover insurance for items with a declared value of $100. However, if it the declared value is more than $100, it won’t be covered by insurance. Getting coverage for these items is essential. 

In the case of UPS, USPS, and FedEx, they do not cover precious stones, cash, and coins. Moreover, some high-value items can only be covered for a limited amount. For example, FedEx will only cover up to $1000 for artworks and plasma-screen television. To know the insurance coverage, you need to contact an agent and decide which insurance coverage you will pick.

Types of Insurance

  • Carrier Insurance

From the name itself, this is the insurance provided by the shipping company. It is super simple to purchase since you'll just add it to your shipping cost. However, it's best to note that there are some disadvantages to it. For one, carrier insurance tends to be limited as to its coverage. We've mentioned earlier that shipping companies only cover a specific value, item, and destination. Some international destinations are not covered by insurance. 

Also, it takes time to process your claims. You'll need to be the one to file a complaint, and you have to do it in the given period for filing claims. Certain documents need to be submitted, such as proof of damage, loss, or theft. Moreover, the shipping company shall investigate to know who's fault it was, because if they find out that you have poor packaging, you won't receive anything. 

If you wish to purchase carrier shipping insurance, you need to read and understand the documents before signing. It's best to cover all the grounds to avoid any surprises. 

  • 3rd Party Parcel Insurance 

Another type of insurance is 3rd party shipping insurance. This insurance company focuses on protection and is in no way related to the shipping company. Most insurance companies offer affordable rates than carriers. Also, they tend to have wider coverage and easier reimbursement processes. But just like with the carrier insurance, you need to thoroughly read the terms and discussions to avoid any surprises. 

Costs of Insurance for Packages

The cost depends on the value of the items. Below are samples of costs from FedEx and USPS.

  • FedEx
Declared ValueCost
Up to $100$0
$100.01 – $300.00$3
Every additional $100 value over $300$1

  • USPS 
Declared ValueCost
Up to $50.00$1.65
$50.01 to $100.00$2.05
$100.01 to $200.00$2.45
$200.01 to $300.00$4.60
Every additional $100 value over $300 (for a value up to $5,000)$4.60 + $.90 per $100 increase
Up to $50.00$1.65

Key Takeaways

Should I get shipping insurance? 

The answer will be, you do. 

It will protect you and your customer, but it will also save you the burden of the financial loss due to catastrophic events. Choosing the right type of cargo insurance can be a bit hard. Luckily, at Stallion Express, we offer insurance for your parcels. We offer affordable shipping rates and insurance for your domestic and international packages. Moreover, you can access our state of the art system to integrate your orders. 

Do you want to know more about our service? Give us a call

Get started today! Ship faster, smarter, cheaper with Stallion.

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Written by Nicasio Co III

Nicasio is the co-founder of Stallion Express - the leading eCommerce shipping company in Canada. Through his unique experiences in tech and digital marketing, he is on a journey to disrupt the logistics industry.

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