What is cargo insurance and how to obtain it?

Cargo insurance protects businesses from financial loss due to damage or loss of goods during shipping. Learn about types of cargo insurance and how it works in this blog.
Cargo insurance
As trade across the world grows, the need for efficient and secure transportation of goods is increasingly becoming more crucial than ever. However, despite the best efforts of carriers and logistics providers, unforeseen events such as natural disasters, theft, and accidents can cause damage to cargo in transit. In such cases, cargo insurance helps manage financial losses and protects businesses from risks associated with global trade.

What is cargo insurance?

Cargo insurance is a form of insurance that protects goods transported from loss, damage, or theft covering various transportation modes, including air, sea, rail, and road. Shippers and freight forwarders can face significant financial losses without this insurance.

Importance of cargo insurance

Cargo insurance in international trade protects importers and exporters against the risk of loss or damage during transit. It ensures that businesses can continue to operate smoothly in the event of any unforeseen circumstances that may arise during transportation. Without cargo insurance, businesses risk losing their goods in transit due to theft, natural disasters, or accidents.

When do you need cargo insurance?

Accidents such as collisions, thefts, and natural disasters can happen even when shipping goods domestically or internationally, and without insurance coverage, this may impact businesses. Cargo insurance is often a major requirement for shippers and carriers. It is always best to be prepared than suffer financial setbacks.

What are the benefits of cargo insurance?

Some of the common benefits of cargo insurance are:

Protects businesses from financial losses

Cargo insurance protects your business from financial losses resulting due to damage or loss of goods. Without this, your business may be liable to bear the full cost of lost or damaged goods, resulting in significant financial losses.

Compliance with international regulations

For businesses that export goods, cargo insurance is often required as an international regulation. Many countries need businesses to provide proof of insurance before they import goods into the country.

Protection for different types of cargo

Different types of cargo require different types of insurance coverage. Cargo insurance can be customized to cover specific types of goods, such as hazardous materials or perishable goods. This ensures that your business has the appropriate coverage for the type of cargo being shipped.

Various coverage policies of cargo insurance

Some of the policies of cargo insurance are:

Single coverage

Single coverage policies offer coverage on a single shipment basis. They are suitable for small business owners who send infrequent shipments.

Contingency policies

Contingency policies place the liability of cargo insurance costs on the customer or importer. This policy includes additional charges and requires legal assistance to determine liability for damages.

Free from particular average

Free from particular average, also known as named peril policy, covers major damages that are usually not covered by all-risk coverage policies. These damages include force majeure or unpredictable events, rough weather conditions, theft or piracy, collision, damage due to sinking, non-delivery of the cargo, etc.

All-risk coverage policy

All-risk coverage policies cover damages caused by uncontrollable external factors. However, this excludes customs rejection, force majeure events, damage or loss due to war, riots, civil unrest, cases of unpaid goods, damage due to negligence, and cargo abandonment.

General average

General average is a policy for marine freight where cargo owners are responsible for compensating for damages to other cargo if their cargo is not damaged or lost during transit via sea.

Open coverage

Open coverage policies are ideal for businesses that frequently send shipments through air or shipping lines. These policies cover more than one shipment for a year or specific period.

How does cargo insurance work?

Cargo insurance is a critical instrument that businesses use to cover risks involved in transporting goods. Here is how the process of how cargo insurance commonly works:

Purchase a cargo insurance policy

The first step is to purchase a cargo insurance policy. The policy outlines coverage clauses including types of damages and losses covered during transit.

Pay the premium

After purchasing the policy, you must pay the premium to activate it.

Submit a claim

In case of any loss or damage during transit, as a policyholder, you can submit a claim to the insurance company. The claim should be supported by proper documentation like bills of lading, invoices, and proof of damage.

Review of claim

After receiving the claim, the insurance company assigns a claim adjuster to the case who will assess the situation to verify if the loss or damage is covered under the clauses of the policy.


You will receive a settlement check to the limit insured if the claim is approved.

How to make a claim for cargo insurance?

Here are the step-by-step instructions on how to claim cargo insurance:

Notify the insurance provider

In case of loss or any damage to the cargo or the ship, the first step is to immediately inform the insurance provider.

Assessment by surveyor

Once the insurance provider is notified, they will appoint a surveyor to assess the damage or loss mentioned. The surveyor will inspect the damaged cargo and prepare a report that details the extent of the damage or loss.

Submit proof and claim form

Along with the surveyor report, you will need to submit all the necessary proofs to support your claim.

File a monetary claim

In case of a missing package, the insured must lodge a monetary claim with the insurance provider and get an acknowledgment for it.

Claim approval

Once the insurance provider receives all the necessary documents, they will review the claim to check if it falls under the policy coverage. If the claim is approved, the insurance provider will send a settlement check to the insured. If the claim is rejected, the insurance provider will inform you of the reason for the rejection.

Legal recourse

If you are not satisfied with the claim outcome or if the claim is rejected, you can approach the court of law to seek legal recourse.

What do freight and cargo insurance policies cover?

Here are the primary coverages that freight and cargo insurance usually provide:
· Damage caused due to explosion or fire, stranding or sinking, etc.
· Additional expenses raised due to overturning, collision, or other road inconveniences
· Damages due to earthquakes, floods, tsunamis, or volcanic eruptions.
· Loss of package during loading or unloading and handling
· Any damage caused due to the entry of seawater into ships and vessels.
· Theft, pilferage, and non-delivery of the cargo
· Damage caused by riots, strikes, and civil commotions
· Damage due to inherent vices, such as natural decay or rust
· Contamination, infestation, and odor
· General average losses
· Damage due to improper packaging, inadequate marking, or labeling
· Any other unforeseen event that causes damage to the cargo during transit.

Types of cargo insurance

Different types of cargo insurance are available to businesses, designed to cover specific risks associated with transporting goods. Below are some of the major types of cargo insurance:

Land cargo insurance

Land cargo insurance is specifically designed for shipping goods within the country’s geographical boundaries. This type of insurance provides coverage in case of collision damages, theft, and other risks involved in freight shipping. Land cargo insurance is usually taken by businesses that use trucks and other utility vehicles to transport goods within the country.

Marine cargo insurance

Marine insurance for export goods is important for businesses that deal with importing and exporting goods through sea routes. This type of insurance offers coverage on any damages due to bad weather conditions, loading and unloading of goods, piracies, and other possible damages.

Air cargo insurance

Air cargo insurance provides coverage for goods being transported by air and protects the insured against various risks, such as loss or damage to the cargo during transit, theft, and other unforeseen events. The policy covers the cost of the cargo as well as any related expenses, such as transportation costs, taxes, and duties.

What do freight and cargo insurance not cover?

Cargo and marine freight insurance

Damage caused by improper packaging

Damage due to faulty products

Restrictions on the mode of transportation

Exclusions for specific shipments

How is cargo insurance calculated?

The calculation of cargo insurance policies is done using a standardized technique known as the CIF+10% formula. The calculation involves considering three different values, which are the Commercial Invoice Value (C), insurance premium (I), and freight and associated charges (F).

The CIF value of a shipment is calculated by adding the three different values of C, I, and F. The 10% added to the total cost is due to inflation in freight charges. For instance, if the Commercial Invoice Value is $60,000, the insurance cost is $300, and the shipping charge is $1,000, then the CIF value of the shipment is $61,300.

The final step in calculating the total insurance payable is to identify the percentage granted by the insurance company. Based on this percentage, the rate is determined, and the total insurance payable is calculated. While this is a commonly used method, insurance companies might update or change this depending on the industry trends, etc.

Difference between cargo and freight insurance policies

Here are the key differences between cargo and freight insurance policies:


The term freight refers to the cost or charges incurred by the carrier for transporting goods via truck, small utility vehicles, or trains. In contrast, the term cargo refers to the goods themselves that are being transported via ships and airplanes.

Mode of transportation:

Freight is usually used for the transportation of goods via land-based vehicles like trucks, trains, and small utility vehicles. On the other hand, cargo is typically used to describe goods that are shipped via ships and airplanes.

Size of shipment:

Freight refers to packages that can be transported in small or medium-sized utility vehicles, while cargo usually specifies goods shipped to larger vehicles like ships or vessels.

Insurance coverage:

In the insurance sector, freight and cargo are separate terms, and coverages are available accordingly. Cargo insurance policies usually cover goods transported by ships and airplanes, while freight insurance policies cover goods transported by land-based vehicles like trucks and trains.

Cargo insurance is an essential aspect of logistics and supply chain management that ensures businesses can operate smoothly without incurring significant financial losses due to unforeseen incidents. By planning logistics early and using hassle-free shipping methods like Amazon FBA or SEND, exporters like you can run a smooth global business.

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Frequently Asked Questions

Is cargo insurance a requirement?
No, cargo insurance is not a legal requirement, but it is recommended. The requirement might also depend on the product category, shipping company, origin and destination countries.
What is cargo insurance class 11?
Cargo insurance Class 11 is a type of insurance classification used in marine cargo insurance policies. It typically covers shipments of raw materials and bulk goods, such as grain, ore, coal, and oil. This classification is important as it helps determine the premium rates for the insurance policy.
What is the cost of cargo insurance?
The cost of cargo insurance is typically around 0.15% of the total value of the goods, based on the commercial invoice. However, this cost may vary depending on the insurance company and its specific offerings.
Published on April 29, 2023.


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