Cargo Insurance: Everything You Need to Know

Logistics companies are capable of transporting goods across the borders. Yet, the goods in transit are exposed to certain risks irrespective of whether they are transported via road, air, or water. The damages caused to the freight or cargo due to natural calamities, accidents, collisions, or theft can cause severe losses to the involved parties. A cargo insurance policy provides protection from these risks by insuring the goods/cargo in transit. 

What is cargo insurance?

Cargo insurance is a type of marine insurance that protects the goods or cargo in transit. It is also known as cargo liability insurance as it protects your valuable goods from thefts, general average, and physical damages. The uncertainties involved in shipping goods from one place to another cannot be prevented every time. However, if you invest a small amount in buying a cargo insurance policy, it can protect you from the financial losses. 

Why is cargo insurance needed?

When you ship a product from point A to point B, the physical damages caused to the goods due to mishandling, theft, etc. are covered by the carrier. Yet, some damages are beyond the scope of a carrier’s liability. For example, the carrier is not at fault when the goods are damaged due to fire, earthquake, lightning, sea accidents, improper packaging of goods, and more. As an importer or exporter of the goods, you cannot rely on the carrier for reimbursing the value of the damaged goods every time. Here is where a cargo insurance policy kicks in. It saves you from the financial losses that can run in millions when the goods are completely damaged due to a natural catastrophe or collision. 

A catastrophic event like fire or explosion can result in the total loss of the carrier. In such times, the carrier may declare a general average due to which everyone who had goods in the ship need to share the losses. Your cargo will be in the carrier’s custody if you do not pay the security money and general average deposit. The losses caused due to declaration of general average can affect your finances badly. An all-risk cargo insurance policy covers general average and provides an all-round protection to your financial health. 

Key Features of Cargo Insurance 

  1. All risks are covered: Different types of cargo insurance are available in the market. An all-risk cargo insurance policy includes a wide coverage for protecting your financial losses from all types of damages. It provides protection from the damages caused due to fire, ship sinks, acts of god, thefts, and more. The additional costs inflicted due to collision, overturning of the vessel, and other events are also covered under this policy. 
  1. All transits are covered: Cargo insurance coverage is not limited only to the inland water transits and international sea voyages. It also protects the goods transported via air, road, rail, post, and courier. 
  1. A wide range of options: Marine cargo insurance coverage provides you with a wide range of insurance policies to choose from. You can insure a single voyage or cover multiple trips in the calendar year. The different types of cargo insurance available in the market like all-risk coverage, major risk coverage, general average, and open coverage allow you to choose the coverage as per your business requirements. 
  1. Profit protection: You can avail a comprehensive cargo insurance policy to protect your profits. Getting such an insurance policy will not only pay for the damages but the coverage will also include the profits that you intended to earn through the shipment. 

Characteristics of Cargo Insurance 

  1. Freight/cargo protection: Cargo insurance protects freight i.e. the losses from the potential damages that can occur during transit via rail, road, ocean, and other modes are covered by it. 
  1. Warehouse coverage: Warehouse coverage refers to the coverage offered to the goods when they are in the warehouse. It is included in all-risk cargo insurance by default. 
  1. Renewable open coverage: Renewable open coverage refers to the type of open coverage policy that can be renewed after every trip or shipments. It is more suitable for single trips or when you don’t know exactly how many shipments you are going to engage in a specific period. 
  1. Claim amount: The claim amount equals the repair expenses in case the items are only damaged to a certain extent. However, if the items are completely damaged or lost, the claim amount equals the invoice value of the items. The claim amount also includes the taxes, tariff, and other charges incurred during the shipment. 

Types of Cargo Insurance 

  1. Land Cargo Insurance: This type of cargo insurance is specifically meant for covering the losses when the cargo is transported via land routes. It provides protection from collisions, overturning of the vehicles, thefts, and other forms of damages caused during land transit. Land cargo insurance coverage is only applicable for the damages caused within the national borders. 
  1. Marine Cargo Insurance: Marine cargo insurance coverage basically covers the air and ocean transits. Different types of marine cargo insurance policies are available in the market. Some of these types include:
  • Open Coverage – For covering multiple shipments in a particular period (usually 1 year)
  • Single Coverage – For covering a single shipment
  • Contingency – If the customers receive damaged products, they tend to return it to the seller. A contingency cover protects you from the losses caused due to return of the delivered goods. 
  • All-risk coverage – This type of cargo insurance covers a wide range of damages. It also covers the losses caused due to lost shipments. 
  • Free from particular average – To cover the major damages caused due to unpredictable events like collision, piracy, ship sinks, and other reasons that are generally not included in the all-risk policy. 
  • General average – General average applies when the loss to the carrier or other cargo owners has to be shared among all the cargo owners who had their goods onboard. 

Cargo Insurance Plans Available in India 

Some of the top cargo insurance in India are mentioned below:

Policy Name Sum Insured PeriodKey Features
Marine Cargo Insurance by IFFCO TOKIOAs per the coverage and policy requirements Varies as per policy type and requirements Policy can be taken for both inland and overseas transit. 
The sum insured value is decided as per the invoice value, insurance type, freight charges, and other additional costs. 
A wide range of damages are covered by this cargo insurance policy
Marine Cargo Insurance by Liberty Insurance As per the coverage and policy requirements Varies as per policy type and requirements Covers transits through road, water, rail, and air. 
Both all risks and basic risks policies are available for the policyholder. 
Includes a broad range of cover against different calamities and risks. 
Cargo Insurance Solutions by DB ShenkerAs per the coverage and policy requirements Varies as per policy type and requirements Comprehensive coverage that accommodates the needs of sophisticated cargo shippers. 
Coverage for all transport modes is offered by this policy. 
Both domestic and international shipments are supported by this cargo insurance policy
Air & Marine Cargo Insurance by Sarvam Logistics As per the coverage and policy requirements Varies as per policy type and requirements Single transit cover, marine open policy, and sales turnover policy are offered by the insurer. 
Covers both domestic and international shippers
Customised policies as per the requirements. 

Inclusions & Exclusions of Cargo Insurance 

What’s covered?

  • Damages caused due to explosion, fire, earthquake, lightning, jettison, and other acts of god are covered under this policy. 
  • The losses caused due to entry of water in the vessel are included in the marine cargo insurance coverage
  • Damages inflicted due to accidents, collisions, thefts, ship sinks, etc. are included in the policy. 
  • The losses or damages of packages while handling, loading, and unloading are covered under this policy. 
  • The losses caused due to general average, partial, or total loss of the cargo are covered under this policy. 

What’s not covered?

  • If the goods get damaged or lost due to improper packaging, the cargo insurance does not cover the losses. 
  • If a particular policy covers only specific transport routes, the damages caused due to other routes are not covered under the policy coverage. Suppose that you had availed only land cargo insurance but the goods were damaged due to inland water transit. In this case, the damages will not be covered. 
  • The products that have technical issues or broken parts (broken before packaging), the cargo insurance policy will not cover them. 
  • Some insurers do not cover certain types of goods or items. For instance, highly valuable metals, gems, and costly electronic items may not be covered under a particular cargo insurance coverage policy. 
  • The losses caused due to delayed shipments are generally excluded from the marine cargo insurance coverage
  • The losses due to insolvency and financial distress are not covered under this policy. 
  • The damages caused due to gradual wearing are not covered under cargo insurance
  • The losses caused due to war, nuclear perils, and intentional misconduct of the policyholder is excluded from the coverage. 

Who needs cargo insurance?

Anyone who is linked with the distribution, buying, selling, or supply of the products may need a cargo insurance policy. The party that needs to buy the policy is also decided upon the type of contract of sale. For example, for C&F, and FOB contracts, the buyers need to buy the cargo insurance for the entire transit. For CIF contracts, the seller needs to buy the insurance. 

The manufacturers of products and those companies that sell their products online may also get cargo insurance. It protects them from the financial losses in case the products get damaged during transit. Traders, merchant exporters, importers, and exporters also need to buy this policy to minimise the losses during transit. 

Things to consider before getting cargo insurance 

  1. Qualified support team executives: The chances of customer dissatisfaction are lower with a qualified team to handle your queries and complaints. As a result, you must look for an insurance provider who provides dedicated support for handling customer queries and complaints. The team members must have all the knowledge regarding complicated cargo insurance rules so that they can resolve your confusions easily. 
  1. A wide range of options: Look for cargo insurance providers that offer a wide range of insurance policies. It will help you choose the plans that are best suited for your business. You should also be allowed to customise a marine cargo insurance policy to include all the risks adequately. Also, adding add-on covers and modifying the sum insured as per the requirement should be allowed by the insurer. 
  1. Know the exclusions: Check for all the exclusions before getting a cargo insurance policy. By doing so, you will be aware if all your requirements are covered in a specific policy or not. 
  1. Online renewal & claim registration: Look for insurance companies that allow you to renew the cargo insurance policy online. You should also be able to raise a claim or dispute online by following a few easy steps. 

How to claim the cargo insurance?

Follow these steps while claiming for the marine cargo insurance coverage:

Step 1: Inform the insurer immediately after an incident 

It is your duty to inform the insurer immediately after an incident. While informing the nature of the damage, the insurer might ask for details like policy number, registered policyholder’s name, etc. You should also inform them about the weight of the damaged items, nature of the damage, replacement cost (in case of total damage), and other details that are required to register your claim request. 

Step 2: Appointment of the surveyor 

After hearing out your case, the insurer will ask you to fill a claim form and provide all the details properly. Also, you should provide all the documents that verify the legitimacy of the claim. After registering your claim, the insurer will appoint a surveyor to examine the damage in-person. The surveyor will create a detailed report that will carry the details like expected losses, reimbursement amount, etc. Provide all the details to the surveyor and cooperate fully with him to complete the processes smoothly. 

Step 3: Be patient while the claim gets processed 

Once the insurer receives the survey report and documents, the claim will be settled within a few days. You need to be patient while all the formalities are completed from their end. If some additional documents or information is required, provide them immediately to settle the claim faster. 

Documents required to support your claim request 

  • Policy documents provided by the insurer at the time of policy issuance
  • A copy of the survey report 
  • A copy of the FIR (in case of thefts)
  • Claim bill
  • Goods invoice (original) with all the specifications
  • Carrier receipts copies
  • A copy of billing lading

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