What Is Cargo Insurance & Why It Is Important For Your Business

Jan 12, 2024 | Blog, Pinnacle Services, Trucking Info

Cargo insurance protects your investment against freight damage or loss. Though not a requirement by law, shippers purchase extra insurance to cover risk during transit and storage of goods – that does not fall under the carrier’s liability.

What Is Cargo Insurance?

Cargo insurance protects your shipment from damage, loss, or theft during transit under certain circumstances – as specified in the contract.

Typical cargo insurance coverage applies to weather-related issues, faulty packaging, errors in loading/unloading, etc., that are excluded from the carrier’s liability.

Special types of freight, such as perishable goods, temperature-sensitive products, high-value items, etc., often need additional cargo insurance policies.

Is Cargo Insurance A Requirement?

No, cargo insurance is not required by law for most types of freight, but it’s a standard practice for shippers.

The reason is that no matter how careful drivers and carriers are, many things can go wrong during cargo storage or transit. 

In fact, it is estimated that more than 2% of cargo arrives with some kind of damage at a distribution center. Damage rates go as high as 11%.

So it’s essential that you further protect your load and your business with the right type of insurance.

Who Is Liable For Damage?

The Carmack Amendment, a uniform national liability system for interstate carriers, recognizes five carrier defenses: an act of God, an act of public enemy, an act of the shipper, a public authority, or the inherent nature or vice of the goods. 

As a result, shippers are not covered for damage/loss of goods due to inadequate packaging, loading errors, severe weather conditions, etc.

In some cases, like HAZMAT transport, cargo insurance is mandatory to mitigate risk and promote public safety.

Protecting Freight Against Loss

Oftentimes, when multiple carriers handle goods during storage and transit, it’s difficult to trace how damage or loss of freight occurred.

In LTL shipping, for example, more stops and increased handling account for a greater damage risk.

Your LTL items are typically loaded and unloaded more than once. Plus, you share trailer space with different companies, so there’s no guarantee that other shippers have packed their cargo properly.

Though the vast majority of LTL shipments are delivered in perfect condition, there’s increased exposure to potential damage. 

However, cargo insurance is essential for all types of shipping services, be it partial, FTL, or expedited shipments.

To facilitate the process, carriers, freight forwarders, and brokers typically offer comprehensive freight insurance services via prominent insurance organizations.

Benefits Of Cargo Insurance

The main benefits of cargo insurance include:

  • Protects shippers against disastrous losses and business impact. 
  • Offers an extra layer of legal protection and support.
  • Ensures cargo loss/damage is dealt with efficiently.
  • Allows for reliable resolutions of claim-related issues.

Things To Consider When Purchasing Cargo Insurance

Before purchasing cargo coverage insurance, you must consider the value and nature of your goods, the route and destination, and the overall logistics processes.

Exclusions And Coverages

Be clear on the insured perils covered by your insurance policy, for example: damage or loss due to accidents, theft, or natural disasters, and thoroughly discuss any exclusions. 

Your insurance should provide adequate coverage for the types of risks relevant to your business and the way you ship your goods.

Coverage Limits

Your cargo insurance policy should cover, at a minimum, the commercial value of your goods plus coverage for common risks.

You also need to consider the potential cost of additional expenses that may occur due to load damage.

Claims Process

Look into all the details of filing claims, the required documentation, and the payment timeline. 

Before partnering with a cargo insurance company, it’s worth doing some research to find out if they handle issues promptly and fairly. Look for a strong record of responsibility and efficiency in claims processing.

Insurer Reputation

Choose an insurer with a solid presence in the cargo insurance market. Things to consider are their financial stability, their customer service, and the number of claims paid.

A trustworthy insurer will do their best to protect your business, as per your contract.

Policy Limits

Carefully review your cargo insurance policy to ensure its limits align with your business.

Types Of Cargo Insurance

The two most common types of cargo insurance are:

All-Risk Insurance

All-risk coverage is the most comprehensive insurance scheme that covers any risk that the contract does not explicitly omit.

Typical exclusions may be improper/inadequate packaging or incorrect storage willfully or out of gross negligence, as well as normal humidity or fluctuations of temperature.

All risk policies tend to be very comprehensive. They offer the highest degree of insurance and, as a result, they come with a higher premium.

Named Perils Insurance

As the term suggests, ‘named perils’ insures cargo only against risks specifically named in the policy. 

Such perils can include collisions, overturns, floods, certain types of windstorms, the collapse of bridges, overpasses, or ramps.

3 Tips To Leverage Your Cargo Insurance

As a shipper, you can optimize your cargo preparation process to minimize the risk of freight loss and facilitate potential claims processes.

  1. Ensure proper packing: this is the first step to avoid load damage – and claims filing procedures. Your carrier can give you expert advice on how to securely pack sensitive goods or other special types of cargo during transit.
  2. Provide accurate information. This will not only save you money and time, but precise data is extremely helpful when conducting thorough checks in cases of freight loss. 
  3. Take pictures of your freight before transit to better review the causes of damage or loss. Photos also work as evidence during the process of filing claims.

Choose The Best All-Risk Cargo Insurance 

Pinnacle Freight Systems, Inc. provides all-risk cargo insurance in amounts up to $600,000 quickly and affordably.

Our comprehensive cargo insurance policies cover physical loss or damage for cargo in transit or (covered) storage. 
We offer cargo insurance through Lloyds of London for any load and any carrier. Want to find out more? Contact us.

Contact Us

Phone: 732.667.5261

Fax: 732.667.5265

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Pinnacle Freight Systems, Inc.
Pinnacle Trucking, LLC
500 Cedar Lane, Florence, NJ 08518

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