Attention all shippers and traders! Are you aware of the potential risks involved in international trade and shipping? Do you have a plan to safeguard cargo from unforeseen circumstances during transit? If not, it's time to sit up and take notes. In this blog post, we will be discussing one crucial aspect you just cannot overlook - Cargo Insurance. Whether you are an importer or exporter, understanding the importance of cargo insurance is essential if you want to protect your business from financial losses due to damages or loss of goods during transportation.

Table of Contents

  • What is Cargo insurance?
  • What are the types of cargo insurance?
  • Who needs it?
  • What are the various forms of cargo insurance?
  • What is the process of cargo insurance?
  • What is included in cargo insurance?
  • What is not covered by Cargo Insurance?
  • What are the advantages of cargo insurance?

What is cargo insurance?

In transit, freight or cargo can get damaged due to unpredictable events on the road or at sea. Cargo insurance is an excellent risk management commercial insurance product that protects companies from financial losses in the loss or damage of cargo. It includes events mentioned in the policy like vehicle accidents, cargo renunciation, damage caused by natural calamities, acts of war, piracy, etc. It is essential for businesses that ship products domestically or internationally. By insuring cargo owners against heavy loss, cargo or freight insurance protects them and indemnifies them accordingly.

What are the different types of cargo insurance?

There are two main types of cargo insurance: all-risk and limited.

A. All-risk cargo insurance

It provides the broadest coverage and includes protection against all risks except those specifically excluded in the policy. The term "all-risk" is a bit of a misnomer, as no policy can cover every possible risk. However, an all-risk policy is designed to provide broad coverage for a wide range of perils, including damage caused by accidents, theft, weather-related events, and other unforeseen circumstances.

Under an all-risk freight insurance policy, the insured goods are protected from loss or damage while they are in transit, as well as during loading and unloading. The coverage may also include storage at transit points, such as warehouses or terminals. All-risk policies typically exclude certain perils, such as loss or damage caused by war, terrorism, nuclear incidents, or intentional acts. Additionally, coverage may be limited or excluded for certain types of goods, such as hazardous materials or fragile items.

B. Limited cargo insurance

Limited cargo insurance provides coverage for a specific set of risks, as outlined in the insurance policy. This type of insurance policy typically covers loss or damage due to particular causes, such as fire, collision, or theft, but may exclude coverage for other risks, such as natural disasters. Limited cargo insurance policies are usually less expensive than all-risk policies because they provide less comprehensive coverage.

In general, all-risk cargo insurance is a better option for cargo owners who want maximum protection for their goods during transportation. However, limited cargo insurance may be sufficient for those who are willing to accept the risk of certain events occurring during transportation and want to save on insurance costs.

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Who needs it?

Cargo insurance is a must for any company engaged in international trade. Even if your goods are shipped by a reputable carrier, there are always risks involved in international shipping. Your goods could be damaged or lost in transit, and if you don't have cargo insurance, you will be responsible for the full cost of the damage or loss. Cargo insurance can protect your business from financial losses resulting from damaged or lost goods. It can also help you avoid disputes with your customers or suppliers over who is responsible for the damage or loss. If you are shipping high-value goods, cargo insurance is an essential part of doing business.

Cargo or freight insurance offers a way to decrease the financial stability when a shipment is damaged. Shipping lines or airlines are exposed to a variety of risks when they handle cargo. Moreover, in most cases, the carrier's liability is less than the total value of the goods, which makes cargo insurance essential.

What are the various forms of cargo insurance?

Land Cargo Insurance

Inland cargo insurance is a type of insurance that provides coverage for goods being transported within a country. This insurance policy protects cargo owners against loss or damage to their goods while they are being transported by land, such as by truck, rail, or barge. Inland cargo insurance typically covers a range of risks, including theft, damage due to accidents or collisions, natural disasters, and other unexpected events.

Marine Cargo Insurance

Marine cargo insurance is a type of insurance that provides coverage for goods being transported by sea or air. This insurance typically covers a range of risks, including loss or damage due to theft, damage caused by accidents or collisions, natural disasters, and other unexpected events that may occur during transit.

Cargo insurance also has several types of policies, which are listed below in brief.

1. Single Coverage –

A single coverage policy, also called a specific coverage policy, offers coverage for a single shipment. Typically, small business owners or businesses that frequently send shipments to use single coverage policies.

2. Contingency Policies

A contingency policy provides coverage for a specific event or situation that is not covered by a primary insurance policy. It is typically used to provide additional protection against specific risks or to fill gaps in coverage that may exist in a primary insurance policy.

3. Open Coverage policies

In this type of insurance policy, you can cover multiple shipments for a year or for a specific period. It consists of two types, permanent coverage, and renewable coverage.

  • Permanent - It covers an unlimited number of shipments within a specified period, such as a year.
  • Renewable - Companies can renew these types of policies in between shipments, making them ideal for delivering single shipments.
How Claims are Processed in Cargo Insurance

How are claims processed in cargo insurance?

Cargo insurance policies contain various clauses that outline the extent of coverage. The policy covers damage or loss caused by the incidents specified in the clauses.

When a claim is submitted, a claim adjuster reviews it to determine if it is viable. If it is, an amount for the insured damage will be paid out. The following information should be provided by businesses when filing a claim:

  • The description of the items lost or damaged- it should include details such as their dimensions, weight, implants, and visual indicators.
  • Inventory number
  • The severity of damage should be properly described.
  • Item age and date of purchase.
  • The location of the goods' packaging
  • Accurate original costs and prices of similar items to determine their replacement cost.
  • The cost of repairing a damaged product, as well as the amount of the product lost if it is destroyed.

What is included in cargo insurance?

To protect a business, cargo insurance offers the following core coverages:

  • Coverage for damage caused by an explosion, fire, sinking, or standing.
  • It covers additional expenses resulting from overturning, collisions, or other road obstructions.
  • Earthquakes, floods, tsunamis, and volcanic eruptions are all covered by insurance.
  • When loading or unloading and handling the package, if the package is lost.
  • Damage of ships and vessels by seawater.
  • Losses caused by theft or pilferage during transit, which may include losses due to burglary, robbery, or theft by employees or other parties.

What is not covered by Cargo Insurance?

There are restrictions stipulated in the policy that prevent any fraudulent claims. Most cargo and freight insurance policies exclude the following scenarios:

  1. Improper packaging damages a shipment

There are no coverages under the policy if the packaging of goods was not done properly. For this reason, many shipping companies specify packaging guidelines for fragile or certain types of goods based on their weight and volume.

  1. Restriction on certain Modes of transportation

Some policies only cover shipments via ship, large utility vehicles, or airplanes. There may be clauses in the policy that do not cover a specific mode of transportation for shipments. To know which modes of transportation are covered, businesses should read all clauses beforehand.

  1. Damage due to the shipment of the faulty product

The policy will not cover damages if the goods sent contain faulty or broken parts, as determined by an insurer.

  1. It does not cover certain types of shipments.

Some insurance companies do not cover goods that are fragile or hazardous. Electronic products, metal items, and highly valuable items may also be excluded from coverage. Insurers for air and marine cargo cover the risks according to the guidelines prescribed by the Institute of Cargo. Only the damage caused by constructive total loss and actual total loss, general average, liability, collision, partial loss, etc., are covered, as per the specifications of this governing body.


Cargo insurance plays an essential role in protecting cargo owners and carriers against the risks associated with transporting goods. From inland cargo insurance to marine cargo insurance, there are different types of policies available to meet the specific needs of different cargo transportation scenarios. All-risk and limited cargo insurance policies offer different levels of coverage, while contingency policies can provide additional protection against specific risks or gaps in coverage. By carefully reviewing and selecting the appropriate cargo insurance policy, cargo owners and carriers can manage their risks and protect their financial interests, helping to ensure the safe and timely delivery of goods to their intended destinations.