As someone who works with transportation and routinely has items shipped, you know that no matter how careful you are, things can happen that are out of your control. This can include almost anything from accidents on dangerous roads, theft, and infestation, to general damage from travel.
While these accidents are usually unavoidable, especially if you are shipping or transporting items frequently, it is easy to make a plan so you aren’t scrambling if something does go wrong with your shipment.
Part of this plan should include freight insurance. While it might seem like a no-brainer to purchase freight insurance, some people – both transporters and our clients – still wonder: is freight insurance worth it?
In this guide, we’ll be answering that question, and covering the benefits and risks of freight insurance to help you decide on whether taking out a policy for your items is necessary.
WHAT IS FREIGHT INSURANCE?
Simply put, freight insurance is used to cover any loss or damage to your freight while it is being transported. If your freight is lost, damaged, or stolen at any time during its transportation, your insurance policy can cover the entire cost of your shipment, regardless of the value of what’s inside.
Of course, there are certain measures that businesses and carriers can take to avoid mistakes happening with shipments. However, people still rely on freight insurance as a safety net for their shipments in case any accidents do happen.
Sometimes, it is easier to file a claim for the damaged shipment rather than trying to replace what is now missing. On the other hand, it’s sometimes more cost effective to skip the excess payment, avoid inflating your insurance premiums, and simply replace the item out of your own pocket.
As many businesses know, carriers are required to have a default protection policy. However, that only covers a shipment up to a certain flat rate and doesn’t adjust based on the size or value of your freight. If you are frequently shipping highly valuable items with transportation companies, especially traveling long distances, you may want to consider investing in your own freight insurance policy.
Who Needs Freight Insurance?
There are a few different types of freight insurance utilised by a variety of industries. Those companies that benefit most from freight insurance are small to medium-sized companies that transfer various products to customers, import or export goods, and manufacturing companies.
Since these companies rely on insurance to lower the risk of their lost goods, they are transporting enough freight regularly to make the cost of insurance worth it, rather than having to pay out of pocket for anything that gets lost.
Types of Freight Insurance
Similar to most other types of insurance, you will be able to work with your freight insurance provider to create your plan, limits, and deductibles depending on how much coverage you are looking for.
However, there are broad policy types including but not limited to:
The bottom line is that freight insurance provides security for the driver because it protects your cargo. There are some variations of this insurance depending on what coverage you are looking for but ultimately is utilised for one singular purpose.
Freight insurance doesn’t just protect drivers and transport companies though. Importers, exporters, and any businesses routinely relying on freight to be transported will benefit too.
There are similar types of insurance such as cargo insurance and freight broker insurance, but freight insurance is designed to be most beneficial for freight companies and our customers.
The Cost of Freight Insurance
Freight insurance is not standardised and there are a lot of factors that determine the cost of each policy. Most notably freight classification, cargo, and loss history. Although, as a freight customer, these aspects may change — depending on your shipping habits.
Taking this into consideration, there are some ways to calculate what your company specifically will likely be paying for insurance.
Since freight insurance covers the cost of what you are transporting, the value of your cargo will be taken into consideration when calculating the cost of your insurance. People commonly determine that the value of their freight is equal to the Commercial Invoice Value. Using that, you can then calculate the percentage based on the dollar value of the invoice (in cents) to every $100 of the invoice total.
For example, if your commercial invoice value is $10,000, you would convert that to $0.10/ $100 which is likely the lowest rate you would get for the most basic policy.
This formula is used to determine the most basic of freight insurance policies, meaning that while the cost of your shipment is covered, there likely won’t be any added value or coverage to this type of policy.
How To Purchase Freight Insurance
Many insurance companies provide freight insurance. People go about finding freight insurance in the same way they go about finding auto or home insurance; start looking around for companies that provide the coverage you are looking for and talk to insurance brokers.
While there are many freight insurance companies and brokers in Australia, freight insurance is something that is provided globally with coverage provided in most countries. It may be worth looking into insurance companies in countries you are most active in. It’s worth noting that most international freight and shipping companies do offer cargo insurance as an add-on to their service.
In addition to covering the cost of your shipment, think about what else you can benefit from through an insurance policy. If you have had past incidents, what could have been more helpful to you? When you have an idea of what your insurance can do for you, communicate that to salespeople from insurance companies to help you find the best policy.
Do I Legally Need Freight Insurance?
There is no law requiring you (or us) to have freight insurance. We do need to have liability coverage, but we are not legally required to have freight insurance as a transportation company.
While we’re not required to have freight insurance, it just makes good sense anyway. We have a freight insurance policy in case of the worst, so we can provide our customers with a high standard of customer service. We encourage our customers to keep their own freight insurance policies as well.
However, there are tonnes of uninsured shipments moving throughout the country and globe every single day — and legally.
Is Freight Insurance Worth It?
Even though there are ways of knowing how to calculate your insurance payment, freight insurance is not cheap by any means. It is important to consider the risks such as claims that can be disputed by your insurance company or certain incidents not being covered by insurance.
For example, many insurance companies will not cover damages from improper freight loading. Other things to consider are the typical cost of your shipments and the likelihood of damage to the kind of products you’re transporting.
That being said, there is safety in knowing that if something happens to your shipment, the value is covered. If the value is lower, your insurance payment will be lower and you have peace of mind knowing you are not required to cover the cost of any lost shipments, especially if a high-value shipment goes awry.
At the end of the day, you can control your policy and how much coverage you are looking for. Therefore, you have the power to make your insurance work for you. However, there are always things that may not be covered if you decide to get the basic policies. With insurance, damages are easily covered and dealt with faster.
The need for insurance truly depends on you, the products you have shipped, and whether the price of freight insurance is worth the value it provides.
Knowing the benefits of freight insurance, moving forward with signing a policy may be in your best interest. At the same time, companies like manufacturers and importers or exporters frequently decide to save money and as a result, many shipments move throughout Australia uninsured.
Regardless, Wyton Transport takes every precaution necessary to provide the services you need to get your cargo from one place to another. While transportation companies like ours aren’t required to insure our freight, we do anyway as part of our commitment to providing our clients with a quality and reliable service.