Cargo insurance is physical loss or damage insurance of goods carried by vessel, road, rail, aircraft, post, or by any other conveyance. This insurance protects those who have an insurable/financial interest in the cargo (buyer or seller and intermediaries, if so structured). Shipping insurance coverage ranges from All Risks to Named Perils, with common extensions as well as customized wordings.
The decision of whether or not to insure your cargo is not always a clear-cut, simple choice. There are many factors to consider, such as the total value of the cargo, the shipping origin and destination, the mode and cost of transportation, or if any agreement or request was made between the buyer and seller of the cargo. The next step is to determine how to insure your cargo.
One option is to insure your shipment for the replacement of the goods shipped in case of total or partial loss or damage, request insurance for the commercial invoice value of the goods. This does not provide any coverage for the freight charges, insurance cost, or any other ancillary charges.
Recoverable freight charges may be prorated based on the portion of the shipment damaged in the case of partial loss/damage.
Here is an example:
CIF + 10% Terms = (Commercial invoice value + insurance costs + freight= CIF value x 110% (10% for any unforeseen costs or charges))
Breakdown as below:
C = Cost/invoice value (purchase cost if your client is the buyer, or selling price if they are the seller)
I = Insurance premium
F = Freight and associated charges
PLUS an additional 10% to cover additional charges incurred due to fluctuations in currency or additional freight cost.
This type of insurance covers not only your cargo, but also your shipping costs in the case of damage or loss where the repair or replacement must be done somewhere other than the consignee’s location. Recoverable freight charges may be prorated based on the portion of the shipment damaged in the case of partial loss/damage.
Below is a sample shipment for CIF + 10% cargo insurance:
Commercial Invoice value = $20,000.00
Freight Charges = $2,000.00
Insurance Cost = $120.00
Total CIF+10% insured Value = $22,000.00 x 110%=$24,200 + $120 = $24,320.00 (Amount to Insure)
The value of the shipment declared for insurance should accurately reflect the full value of the shipment at the intended final destination, including the costs incurred to get the goods to the final destination. If a loss occurs and the amount declared is found to be less than the true value, the claim settlement may be pro-rated to a lesser amount. In these situations, it is if the insured is acting as a co-insurer of the shipment and sharing in the loss.
WHAT TO DO IF LOSS OR DAMAGE IS DISCOVERED
First step, advise the company to help with the claims process. Follow the instructions outlined on your Certificate of Insurance. Report the loss to the carrier in writing advising them that you intend to submit a claim for the loss. Contact the surveyor at the destination (usually shown on the Certificate of Insurance), who will attend and establish the cause and extent of the loss.
Proper notation on shipping documents and notification to the appropriate parties is essential to ensure the ability to process a claim. Like all insurances, payment of the premium and freight charges is required in order for coverage to be confirmed and a claim to be filed and ultimately settled.