Differences and Understanding Between Freight Insurance and Cargo Insurance

Shipping goods internationally comes with risks from unexpected weather to potential mishandling and choosing the right insurance. Freight and cargo insurance offer unique coverage, but they’re designed for different parties and scenarios. 

Freight insurance primarily protects freight forwarders, while cargo insurance directly protects shippers. It covers the full value of your goods against losses like damage or theft. 

A study states, “The global cargo insurance market, valued at $71.4 billion in 2022, is expected to grow to $106 billion by 2032, with a projected CAGR of 4.1% from 2023 to 2032”.

In this article, you’ll get a clear breakdown of freight insurance vs cargo insurance, helping you make the best choice to protect your shipments end to end.

Essential Insights to Understand Before You Insure Your Goods

Here are a few essential insights to consider before insuring your goods:

• Know the Risks Involved: Ocean freight can encounter various risks, from weather delays to accidents. Understand what threats your cargo may face along the journey to ensure your coverage matches those needs.
• Understand Coverage Limits and Exclusions: Not all policies are created equal. Check for exclusions, like damages from war, natural disasters, or improper packaging, and understand the maximum coverage limits so you’re not caught off guard.
• Valuation of Your Goods: Accurate valuation is essential to ensure that you receive a settlement that reflects the true worth of your shipment in the event of a claim. Under-insuring may save on premiums but can leave you exposed.
• Choosing the Right Policy Type: Consider if you need “all-risk” coverage, which provides broad protection against most incidents, or if “named-perils” insurance, covering only specific risks, is sufficient for your shipment.
• Policy Term: Determine the duration for which you need coverage. Some policies offer single-shipment coverage, while others are annual and cover multiple shipments. If you ship frequently, an annual policy might offer better value.
• Evaluate the Claim Process: The speed and ease of the claims process can vary significantly. A streamlined claims process is crucial, especially for time-sensitive goods, as it can significantly mitigate business disruptions.

Understanding Incoterms in Shipping

Incoterms (International Commercial Terms) define the responsibilities of buyers and sellers during international transactions. Created by the International Chamber of Commerce (ICC), these terms clarify who handles costs, risks, and insurance at each stage of the shipping process.

Below are the mainly used Incoterms in shipping for Insurance:

• FCA (Free Carrier): Under FCA, the seller fulfills their responsibility once the goods are delivered to a specified carrier or location, such as a shipping terminal or transport hub. From then on, the buyer assumes all costs, risks, and insurance responsibilities. 
• EXW (Ex Works): Under EXW, the buyer takes responsibility for the shipment from the seller’s premises, including insurance. If you’re the buyer, you’ll need to arrange full insurance from pickup to destination, as the seller isn’t liable once goods leave their location.
• FOB (Free on Board): With FOB, the seller covers costs and risks until the goods are loaded onto the shipping vessel. The buyer assumes responsibility, including insurance, when goods are on board. Buyers should secure insurance from this point to cover the journey to the destination.
• CIF (Cost, Insurance, and Freight): CIF requires the seller to cover costs, freight, and minimal insurance to the port of destination. This insurance typically covers only a limited value (around 110% of the goods’ cost) and offers basic coverage. If you need comprehensive insurance, arrange additional coverage.
• CIP (Carriage and Insurance Paid To): CIP, similar to CIF but applicable to all transport modes, requires the seller to arrange and cover the insurance cost to the specified destination. Unlike CIF, CIP includes broader insurance, offering buyers more security. However, consider supplementary insurance if you require higher limits or specific coverage.
• DAP (Delivered at Place): In DAP, the seller is accountable for transportation costs and risks until delivery at the buyer’s designated location. However, insurance isn’t mandatory. Both parties should clarify insurance terms; typically, the buyer may want coverage from origin to delivery.

What is Freight Insurance?

Freight insurance safeguards the freight forwarder from financial losses if goods are lost, damaged, or delayed during transit. It is designed to cover the liabilities of the freight handler in cases of unforeseen incidents, such as accidents, mishandling, or natural disasters, that may affect the shipment. 

What is Cargo Insurance?

Cargo insurance is coverage that protects the value of your goods during shipping. If your items are damaged, lost, or stolen while in transit, cargo insurance helps you recover the financial value of those goods. It’s a smart way for shippers to avoid major losses if something goes wrong on the way to the destination, whether due to rough weather, accidents, or theft.

Freight Insurance VS Cargo Insurance

This table highlights the main differences, helping you decide which type of insurance aligns with your needs during shipping.

Ways to Arrange Caro Insurance: Options with Freight Forwarders and Brokers

Here are the main ways to arrange cargo insurance, whether through a freight forwarder or a broker:

1. Cargo Insurance via Freight Forwarders

• Convenient Add-On: Freight forwarders often offer cargo insurance as an add-on, making it simple for shippers to secure coverage alongside their shipping arrangements. This option is especially convenient if you’re looking for a single, comprehensive solution for logistics and insurance.
• Standard Coverage: Insurance through a forwarder usually covers the value of the goods but might have limited policy options. It’s great for standard shipments but may not be customizable if you have unique or high-value goods.
• Single Shipment or Annual Coverage: Freight forwarders can provide insurance for individual shipments or annual coverage if you ship frequently, offering flexibility based on your shipping needs.

2. Cargo Insurance via Brokers

• Customized Coverage Options: Insurance brokers specialize in providing a wide range of cargo insurance options. They can tailor coverage to meet specific needs, such as high-value items, perishable goods, or shipments requiring extra protection.
• Full-Value Coverage: Brokers can arrange full-value coverage, ensuring that the total value of the goods, including shipping costs, is protected. This is helpful if your cargo requires more comprehensive protection than standard policies.
• Flexible Terms and Premiums: Brokers can compare premiums across various insurance providers, potentially finding you better rates or terms. This flexibility is beneficial if you have specific requirements or budget considerations.

Key Points to Remember:

• Who Arranges It: Cargo insurance is typically arranged by the shipper or sender, giving them control over the level of coverage. The freight forwarder or carrier usually arranges freight insurance to cover their liability for the goods in transit.
• Level of Coverage: Whether through a forwarder or broker, you can choose full-value coverage to ensure the entire value of the goods is protected against loss, damage, or theft.

Intoglo’s Primary Services and Insurance Coverage

Intoglo provides a seamless, end-to-end logistics solution for FCL shipments from India to the USA. With extensive services like real-time tracking through Glotrack, in-house compliance and pre-screening, 50+ warehouse network in the USA, and transparent pricing, Intoglo ensures a smooth shipping experience. In addition, Intoglo offers optional marine/cargo insurance to protect the total value of goods for clients who want extra coverage, giving shippers the confidence that their cargo is secure from origin to destination.

Modes of Transportation

Both freight insurance and cargo insurance offer coverage across multiple modes of transportation—land, air, and sea—whether shipments are domestic or international. 

Here’s how different modes impact these policies:

1. Land Transportation:
   • Domestic Shipments: Insurance for land transport often covers risks like road accidents, theft, and handling damage during trucking or rail transport.
   • International Shipments: For cross-border land shipments, insurance may include additional coverage for customs clearance and country-specific regulations, ensuring goods are protected as they move across borders.

2. Air Transportation:
   • Speed with Added Risks: Air transport is typically faster but may involve higher premiums due to added risks like turbulence, pressure changes, and handling during multiple loading and unloading stages.
   • Higher Coverage Costs: Insurance for air shipments often comes at a higher rate due to the higher value of goods typically shipped by air and the sensitive handling involved.

3. Sea Transportation:
   • Extended Coverage: Sea transport covers ocean-specific risks such as storms, seawater exposure, and potential port delays. Policies for ocean freight often account for the longer journey and the risks associated with sea transit.
   • Cost-Efficient but Variable Risk: While sea freight is the most cost-effective choice for large shipments, insurance specifics can vary based on vessel type, route, and season.

Choosing a Transport Mode and its Impact on Insurance

The mode of transport affects insurance specifics in several ways:

• Premium Rates: Sea transport is generally more affordable for bulk shipments but may have different coverage terms than air or land transport. Air shipments often carry higher premiums due to their value and sensitivity.
• Coverage Details: Each mode has unique risks (e.g., theft on land, seawater damage at sea), so policy terms may be tailored accordingly. Comprehensive policies can cover these distinct risks, ensuring your cargo is protected based on the transport method.

Intoglo has served over 200 clients, including MSMEs, D2C brands, and large enterprises, as a one-stop logistics solution from India to the USA. You may discuss your cross-border shipping needs with the experts and get instant solutions. 

Common Misconceptions and Considerations

1. Many shippers mistakenly assume that general liability insurance or the carrier’s coverage will automatically protect their goods during transit. However, standard freight or carrier liability coverage often provides only limited protection and may not cover the full value of the cargo in the event of damage or loss.
2. Another common misconception is that freight forwarders are automatically responsible for replacing or reimbursing damaged goods. In reality, the freight forwarder’s liability is often limited to specific incidents and may not be liable for uncontrollable factors like natural disasters or piracy.
3. Some businesses believe purchasing additional cargo insurance is unnecessary if they already have business insurance. However, business policies rarely cover losses in transit, making a separate cargo insurance policy essential for protecting the goods.

Importance of Understanding Coverage Limitations and Policy Specifics

• Coverage Limits: Numerous insurance policies come with coverage limitations, often excluding specific types of damage, like issues from inadequate packaging or natural disasters. It’s crucial to review and understand these limits to avoid surprises in case of a claim.
• Policy Details: Not all policies are the same, and specifics like deductibles, premium costs, and what constitutes a “covered loss” can vary widely. For example, “all-risk” policies are broader but may still have exclusions, while “named-perils” policies cover only specific risks, leaving gaps for certain incidents.
• Policy Duration: Some shippers assume their insurance covers the entire journey. However, certain policies only protect goods up to a specific point (e.g., until the goods reach a port), so ensuring coverage aligns with the full transit route is essential.

Why Consider Individual Policies?

An individual cargo insurance policy offers tailored protection that covers the full value of goods and fills the gaps left by standard liability policies. Shippers can select coverage that meets the unique needs of each shipment, from high-value items to perishable goods, ensuring peace of mind regardless of transit risks.

Conclusion

Understanding the differences between freight insurance and cargo insurance is essential for protecting your shipments and ensuring smooth logistics. While freight insurance covers the freight forwarder’s liability, cargo insurance provides broader protection for the full value of your goods, shielding them from potential risks during transit. Both types play a crucial role in transport logistics by offering tailored solutions for different needs. 

Intoglo is a door-to-door logistics company that specializes in cross border shipping of a wide range of products, including food, automotive parts, and beauty items. It offers seamless customs clearance from India to the USA and works directly with shipping lines and customs brokers to ensure reliable and timely deliveries. 

Get in touch with our experts now.