Cargo Insurance – Overview of Basic Principles

Why should you have to pay extra to pay for freight insurance? The short answer is: because with this “extra” amount, you will be compensated in case your cargo is lost or damaged. However, let’s define freight insurance in a more technical way. Freight insurance generally covers loss or damage, total or partial, of the goods which are the subject of insurance cover if these goods are damaged or lost during transport and all other essential conditions are fulfilled. This sentence essentially embodies the conditions before you can claim your insurance product. It is very important to note that not all types of loss and damage to the goods allow the owner of the freight insurance policy to claim the insurance proceeds.

General key concept of insurance

These general insurance concepts also apply to cargo insurance:

The claimant must have an insurable interest. Insurable interest is a question of law. Simply put, you have an insurable interest in a shipment if you become lost when that shipment is damaged or lost.

Another general concept is that “perils insured against” must be the source of the damage or loss. Study carefully the insurance policy that you have taken out or that which is offered to you. If it is not clear, ask the supplier or the underwriter what events or circumstances are covered by the policy. It is vital. If the freight insurance you have purchased has not listed the cause of the damage, you cannot claim the insurance proceeds. As an illustration, if the loss was due to typhoon Yolanda and typhoons, or to “force majeure”, or if natural disasters were not on the list, you can lose your cargo without compensation for your loss .

Filing your complaint is also another vital thing to consider. Some may require that you inspect your cargo upon delivery or within 24 hours. Some may plan a longer period, such as a few days. Some may distinguish between a cargo delivered with visible impact or damage to the surface of the box or package. The time allocated for visible surface damage is shorter. In the end, be sure to check the time frame within which you must notify the carrier of the fact that the cargo is damaged and the period within which you must inform your insurer of your claim.

When do you own it?

This is important because you need to take out freight insurance covering the supply chain segment when you are considered the “owner” of the goods. This becomes very important, especially for international transactions. Remember our basic concept – if it’s not covered or compensated. Two terms to note:

“FOB Origin” and “FOB Destination”

The first means free on board origin where the buyer is deemed to be the owner of the goods once the goods are delivered to the carrier. The second signifies the free destination on board. In the latter, the seller retains ownership of the items transported by the carrier until the goods reach their destination.

Contracts and stipulation

The legal provisions serve as general rules to be followed to settle disputes. Thus, if the buyer and seller conclude a contract or stipulation, this will be given in due time. The agreements, conditions and stipulations between two contracting parties will act as law between them. That said, if the seller and the buyer agree on responsibility, this will be taken into account and respected.

Freight Insurance Provider vs. General Insurance Provider

Do you prefer one over the other? Well, one can have an advantage over the other. While freight insurance providers are specialized in this area and are therefore supposed to be masters of their trade, it may also be worthwhile to take advantage of freight insurance from a supplier with whom you have other types of insurance. You can benefit from reductions to benefit from multi-coverage. The deciding factor is whether your supplier is knowledgeable about supply chain management and supply chain processes. Knowing this will give you more confidence that you are buying your cargo insurance from the right supplier.

Covered mode of transportation

As mentioned above, if a particular situation is not covered by the conditions written on the insurance policy, the loss of the goods will be “charged to experience” and you will not be able to claim the insurance product . By way of illustration, if the insurance you have purchased covers the transport of goods by sea, you cannot claim the insurance product if the goods are lost during their air transport. Even if the police expressly stipulated that it covers the transportation of goods through a trucking service, if the goods are lost during their transportation by rail, the claimant cannot claim. So before buying an offer, check which modes of transport are covered. It is helpful to read the entire contents of the freight insurance policy, including the “fine print” and ask for clarification if you have any doubts.

Freight insurance is a comprehensive subject, but it is worth learning some basic principles so that when you buy one, you will be more confident that you can claim the product successfully when untoward incidents occur resulting in loss of your goods.

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