Freight insurance is a type of insurance that covers goods or products being shipped from one place to another. It is essential for any business or individual involved in shipping goods, as it offers financial protection if the goods are lost, damaged, or stolen.
This blog post will explore what freight insurance is, how it works, and why it is essential. We will also cover the different types of freight insurance available and explain how to choose the right coverage for your needs.
What is freight insurance?
Freight insurance is a type of insurance that provides coverage for goods in transit, which protects businesses from losses due to damage, theft, or other events. Freight insurance covers the cost of replacing or repairing damaged goods and any related legal expenses. Most carriers will provide limited liability protection to their customers.
However, this can be inadequate when dealing with larger, higher-value items. In addition, carrier liability usually excludes certain types of insurable events such as:
- Floods
- Fires
- And acts of terrorism
To protect against these and other risks, businesses purchase freight insurance from an insurance company to provide additional liability coverage.
Types of insurable events covered by freight insurance typically include damage caused by collisions, overturns, derailments, accidents involving carriers or their agents, and theft or pilferage of goods. Other events covered by freight insurance include natural disasters such as floods, earthquakes, lightning strikes, and tornadoes; and incidents caused by third-party negligence such as fire or vandalism. Depending on the policy, freight insurance may also cover delays in transit due to labor strikes or other causes.
Businesses typically can choose between two types of freight insurance: annual freight insurance and single shipment insurance. Annual freight insurance protects all shipments during the period specified by the policy. It covers all insurable events and is suitable for businesses that regularly ship over a specific time. Single shipment insurance is intended for one-time or occasional shipments and covers fewer events than an annual policy.
Other freight insurance policies are named perils, open cover, and total loss. Documented perils policies provide coverage for a specified list of insured events.
Annual Freight Insurance
Regarding freight insurance, annual freight insurance is one of the most common types. It covers all shipments sent throughout the year and provides a cost-effective way to protect multiple shipments. Annual freight insurance policies are often provided by a single insurance company and can include any insurable events, including carrier liability and other limited liabilities.
LTL freight insurance is a type of annual freight insurance that covers less than truckload (LTL) shipments. This policy usually provides coverage for any damage or loss during transit. The policy’s specific terms will depend on the insurer, but liability coverage for these types of policies is set at an agreed-upon amount.
Named Perils
Named Perils is a type of freight insurance that provides coverage for specific risks or events that may cause damage to the goods in transit. It covers the insured cargo against loss or damage due to events such as:
- Fire
- Collision
- Overturning of the carrier
- Theft
- And other named perils
The insurance company is responsible for providing liability coverage to the shipper for a certain type of event. In this type of insurance, the carrier’s liability is limited to the extent of the policy. This makes it ideal for LTL freight insurance, where the carrier’s liability is limited to the terms stated in the contract.
Open Cover
Open cover is a type of freight insurance that provides carriers greater flexibility and coverage. It is usually a preferred option to cover LTL freight insurance, as it allows for broader liability coverage and has limited liabilities. Open cover offers protection against insurable events, and the insurance company assumes liability instead of the carrier.
The policy will cover any damage or loss of goods due to theft, fire, accidents, or other events out of the carrier’s control. Open cover policies are typically purchased annually, providing companies with continuous coverage and protection against damage or losses.
Single Shipment
Single Shipment insurance is designed to cover a single, specific freight shipment. When an organization chooses this type of insurance, the carrier is liable for any damages that may occur to the freight during transit. This type of coverage offers a level of protection from the costs associated with repairing or replacing damaged goods and lost or stolen cargo.
The insurable events covered by single shipment insurance may include fire, collision, overturning, lightning, explosion, shipwreck, natural disasters, theft, and hijacking. In addition, liability coverage may be available to protect the insured against loss due to carrier or limited liability.
For LTL Freight Insurance, several insurance companies offer single shipment coverage. The cost of single shipment insurance will vary depending on the value of the goods shipped and the event or events covered.
Total Loss
Total loss is a type of freight insurance that provides coverage for destroying goods in transit due to an insurable event. It is essential to be aware that carrier liability is limited, which means they are not responsible for any damage or losses in the event of an incident. Total loss freight insurance can provide additional coverage to protect your goods against potential losses.
This type of insurance covers both LTL (Less than Truckload) and FTL (Full Truckload) shipments, and it typically includes all kinds of insurable events like fire, theft, or natural disasters. In the event of damage or destruction, the insurance company will compensate the policyholder for their loss. Depending on the policy’s terms and conditions, the compensation could be a replacement cost or cash value.