Transportation providers have cargo insurance to protect themselves and customers in the event something happens to freight during transit.
Cargo insurance is required for all trucking companies, in addition to traditional vehicle and liability insurance. If freight is damaged for any reason, whether the damage is minor bumps and bruises to a few units, spoilage of perishable items or catastrophic damage to the entire truckload, the customer or carrier will file a cargo insurance claim.
Since we were founded in 1955, Anderson Trucking Service (ATS) has worked with cargo insurance companies to ensure loads have proper coverage, and to file claims when needed. During this time, we have gained valuable experience on all sides of the issue.
In this article, we will explain cargo insurance to help shippers understand the level of coverage they have. You will learn the importance of cargo insurance, how to specify the correct amount when communicating with carriers and what steps to take to prevent future cargo insurance claims.
Why Cargo Insurance Matters
Ideally, your cargo will be delivered without incident, and there will be no need to interact with cargo insurance. However, when you’re talking about loading your valuable inventory onto a truck (possibly with other freight), traveling hundreds or thousands of miles and then unloading it, there’s always a chance that something will get damaged.
When that happens, you’ll need to take advantage of cargo insurance.
Cargo insurance can come from two sources: the carrier itself (which will have insurance, up to a certain point), or you can secure your own insurance.
- The price of carrier-provided insurance is included with the price of the shipment.
- Securing your own freight insurance comes at an added cost. The carrier may be able to help you source a provider, or you be able to add cargo insurance as a rider with other insurance coverage.
The time to think about cargo insurance is before you need it. Understanding your coverage now can potentially save a tremendous amount of money and hassle later.
What Your Certificate of Insurance Means
Transportation carriers have insurance with up to two separate limits: an overall limit and a per-occurrence limit.
The per-occurrence limit is what matters for your shipment. Many carriers have $100,000 cargo coverage. The per-occurrence limit is the amount of insurance on your load.
If your provider has a per-occurrence limit of $100,000, that is the most the insurance company will pay out in case of damage.
- If your cargo is worth $75,000, you may be able to recover the total value of your cargo.
- If your cargo is valued at $150,000, you are eligible for a maximum payout of $100,000 — potentially leaving you to make up the difference.
When talking with your carrier about their insurance coverage, be sure you ask about the per-occurrence coverage. The carrier’s certificate of insurance may list only the overall insurance limit — not the amount of coverage on your freight.
The overall insurance limit is the total amount of coverage your carrier has. Especially for a large carrier, this limit will be significantly higher than the per-occurrence coverage (the carrier needs to be covered in case they need to make several payouts in a short time).
While it can be reassuring to know the carrier has adequate coverage for several incidents, that total insurance amount won’t do you any good if the per-occurrence limit is less than the value of your freight.
Any potential payout for your freight will be limited by both the per-occurrence insurance limit and the value of your freight.
Specify the Value of Your Cargo Before Transit
Always include the total value of your load, as well as the value of each unit, in your specification. Your contracting representative will use that information to make sure there is adequate insurance in case something does happen to your cargo.
If you are shipping high-value freight, you may want to go a step further and ask the representative how much insurance will be on your load. If the amount is lower than the total value of your freight, ask about options for additional coverage.
Some carriers will not carry freight valued above a specific threshold, and they may decline to carry your high-value cargo. This is for their protection as well as yours. You don’t want to trust a carrier who isn’t enthusiastically able to meet your needs.
Customers who consistently ship high-value freight may want to carry their own insurance policy or rider to ensure they always have the coverage needed. Especially if you use multiple shipping providers, having this coverage available will provide peace of mind (and more tangible benefits if something does happen to your freight).
Obtaining your own insurance will come with an additional cost, but the benefit when it is needed can more than make up the difference.
How Much Does Cargo Insurance Cost?
If you are sourcing your own cargo insurance, expect to pay at least 0.2 percent of the total value of your freight. That estimate is for a stand-alone policy on one load of freight, it does not cover multiple shipments.
Before securing your own insurance rider, have a conversation with your representative. Clarify with them how much insurance is already on your load, and how (if) your rider will complement that coverage.
Note that most insurance providers will only insure your freight up to its total value. If the trucking company’s insurance already covers the value of the load, you may not be able to add an insurance rider.
Cargo insurance is designed to reimburse the shipper in case of freight damage. While it’s a valuable asset that you will appreciate, there’s no replacement for protecting your cargo from potential damage before it happens.
How to Protect Freight In Addition to Cargo Insurance
Cargo insurance is one way to help recover the value of your freight if it’s damaged or stolen during transit.
Of course, the ideal situation is that cargo insurance will never be needed. While it’s impossible to provide 100 percent protection for 100 percent of freight, there are a few steps you can take to help your cargo arrive safely at its destination.
Follow Information Security Practices
Modern-day cargo theft often takes the form of a hacking or phishing scam. Before loading any freight onto a truck or even ordering the load, be sure to vet potential carriers and their representatives.
Know who you’re talking to before trusting them with your valuable assets. Verify and double-check everything they tell you, especially if it’s someone you haven’t worked with before.
Be Sure About Securement
Before setting out, the driver will secure your freight to the truck to stop it from moving or shifting during transit.
Proper securement protects your freight from damage that can happen during transit. While the driver is ultimately responsible for securing your freight, don’t be afraid to ask how it will be secured and add your own requirements for breakable items.
Be Specific in Your Requests
Your shipping provider uses the information on your specification to ensure they have the right type of vehicle, the right type of securement and the right permits if needed.
Providing accurate information from the first conversation will make sure the carrier has what is needed to transport your freight safely and efficiently. In addition to helping transit go smoothly, an accurate specification will help you avoid additional charges like truck order not used (TONU) fees.
Things like measurements, weight, piece count and even pictures can help your transportation provider safely travel your freight. It’s better to err on the side of providing too much information rather than leaving out critical details.
Working with your transportation provider and their insurance company throughout the shipping process is the best way to protect your freight.
Plan Ahead to Prevent Freight Damage Claims
No matter the size or value of your shipment, it’s important to ensure you have the correct amount of cargo insurance. Being accurate in your specifications and working with your freight carriers to verify the cargo insurance available to you can help prevent future problems and disasters.
Work with your transportation provider to be sure you understand how your freight will be protected, and make sure you understand the full coverage and restrictions on applicable insurance policies.
Not all freight carriers are created equal when it comes to protecting your freight. The Freight Carrier Selection Checklist can help you find the best carrier for your needs. If you’re ready to talk about a specific load, contact the ATS team for an estimate.