Shipping Insurance: A Smart Investment or Unnecessary Cost?

Authored by Matt Lessard

Since 2001, Matt Lessard has started numerous projects, from an E-commerce SaaS to an online store shipping to over 80 countries. Creator of Buster Fetcher®, a technology reducing shipping costs. Passionate about personal development and business growth.

As an e-commerce business owner you face a unique challenge: your success relies heavily on a third party providers – the carrier. Carriers like Canada Post, FedEx, UPS, and Purolator have constraints to deal with – weather, road conditions, accidents, and so on. Yet, the vast majority of their deliveries are more than satisfactory and completed on time.

Unfortunately, it may happen that your package is lost, stolen or damaged while out for delivery. By experience, we know that in such cases, customers expect to be quickly reimbursed or receive a replacement product, perhaps even receive discounts or compensation offers.

For this reason, carriers offer shipping insurance for the “declared value for carriage”. However, should you automatically subscribe?

In this article, we'll explore what shipping insurance is, its costs, how to file a claim, and when it's most beneficial for your e-commerce business.

What is Shipping Insurance?

Shipping insurance is a service that provides coverage for lost, damaged, or stolen packages during transit. It offers financial protection to businesses, reimbursing them for the value of the goods or the shipping costs in case of unforeseen events.

While in most case, parcels automatically have coverage for up to $100 in value, if your products are of high value, it is a good idea to have shipping insurance to cover these situations.

Here are some things to keep in mind.

• You must accurately declare the value of each of your parcels, and be honest about this value. This is because, if you need to make a claim, your carrier will require proof of the value.
  
  
• You must follow the carrier's packaging guidelines in order for the insurance to be valid.
  
  
• Certain items might not be covered by all shipping insurance. Each carrier has its own list of items that are excluded from coverage, or that need to be insured in a particular way, such as luggage, liquids, hazardous materials, or silver. It's essential to review your carrier's shipping terms and conditions or reach out to them directly for a complete understanding of what's covered.
  
  
• You are responsible for making a claim with your carrier if your package is lost, damaged, or stolen. You will need to provide proof of the damage and the value.
  
  
• If you are shipping to a higher-risk area, such as Central America or Africa, you should consider paying for shipping insurance for packages with a value over $100. Some insurance companies might not cover packages shipped to these areas.

The Difference Between Shipping Insurance And Carrier Liability

It's important to distinguish shipping insurance from carrier liability (also called freight insurance or cargo insurance). Carriers typically offer basic protection, often up to $100, as part of their standard service. However, this basic coverage is usually insufficient for higher-value items, making additional shipping insurance essential for many e-commerce businesses.

Here's a quick overview of the key differences:

What Are The Types Of Shipping Insurance?

There are two main types of shipping insurance available for e-commerce businesses:

Carrier-provided insurance

• Offered by shipping companies like USPS, UPS, FedEx, Canada Post, and Purolator.

• Typically provides basic coverage for loss, theft, and damage during transit.

• Often includes free coverage up to $100, with additional coverage available for purchase.

   

   

  For example:

  • Canada Post includes liability coverage of up to $100 in its Priority, Xpresspost, and flat rate boxes shipping services.
    
    
  • FedEx, UPS, and Purolator offer similar coverage, with each domestic parcel automatically covered for a value of up to $100 against loss or damage.

   

Limitations:

• Carrier-provided insurance often excludes certain items. For example, Canada Post does not cover fragile items like glass, ceramics, or items of a perishable nature. Shipments containing electronics are only eligible for damage claims if they are packaged in the manufacturer’s original packaging or in packaging that meets Canada Post’s guidelines.
  
  
• Shipments of high-value items such as jewelry or collectibles have a maximum per claim limit of $500, even if additional insurance is purchased. This means businesses shipping such items may be underinsured if relying solely on carrier insurance.
  
  
• Some carriers may refuse to cover items shipped to certain high-risk destinations or exclude items that are not properly packaged according to their standards.

Third-party insurance

• Provided by specialized insurance companies, not the carriers themselves.
  
  
• Often more flexible and cost-effective, especially for bulk shipments.
  
  
• Generally offers broader coverage than carrier insurance.
  
  
• May have a more straightforward claims process.
  
  
• Typically covers a wider range of products and higher-value shipments, making it ideal for businesses shipping high-value or fragile items frequently.

When deciding between these options, consider factors such as:

• The value and volume of your shipments
  
  
• The types of products you’re shipping
  
  
• Your destination countries
  
  
• The level of coverage you need
  
  
• The ease of the claims process

It’s worth comparing rates and coverage options between carrier-provided insurance and third-party providers to find the best fit for your business needs.

How Much Does Insurance Cost?

The cost of shipping insurance varies based on factors such as the insurance provider, declared value of the package, destination, and the level of coverage chosen. Let’s break down the costs for the two main types of shipping insurance:

Carrier Insurance Costs

Many carriers include basic coverage in their shipping services. For example:

• Canada Post, FedEx, UPS, and Purolator: These carriers typically offer free coverage up to $100 for domestic parcels.
• Additional Coverage: For packages valued above $100, these carriers usually offer additional coverage for $2 to $5 per $100 of coverage.
• Canada Post: Offers additional liability coverage of up to $5,000 for a fee, available for all services except for flat-rate boxes.

For the most accurate information, you should always check the latest terms and rates provided by the carriers. Coverage rates and exclusions can change, and understanding these details will help ensure your business and customers are adequately protected.

Third-party Insurance Costs

Third-party insurance providers often offer more competitive rates, especially for businesses with high shipping volumes. While specific costs can vary, here's a general example:

• Insurance is typically available on the full value of the shipment (and freight cost, if included) at a cost of $1.25 per $100 purchased with no deductibles on claims.
• The minimum charge for insurance is often around $4.95.

Cost Comparison Table

Here's a quick comparison of the costs and features of carrier-provided and third-party insurance:

Key Considerations for Costs

When evaluating shipping insurance costs, keep in mind:

1. Volume of shipments: If you're a frequent shipper, third-party insurance may be more cost-effective.
2. Value of goods: Higher-value shipments may benefit from the broader coverage offered by third-party insurance.
3. Destination: Some providers may charge more for international or high-risk destinations.
4. Claims process: Consider the ease and speed of the claims process, as this can impact the overall cost to your business.

Remember to compare rates and coverage options from multiple providers to find the best fit for your specific e-commerce business needs.

How To File A Shipping Insurance Claim

If a package is delivered damaged or goes missing, it is your responsibility to file a claim with your carrier. Here’s what you need to know:

1. Check Eligibility and Deadlines

• Verify that your shipment qualifies for a claim based on the carrier’s terms and conditions. Some items may be excluded.
• Be aware of the claim deadlines:
  • Canada Post: 90 days for domestic, 6 months for international.
  • FedEx, UPS, Purolator: Typically 60 days for damage, 9 months for loss.

2. Gather Required Documentation

• Proof of Damage or Loss: Photos of damaged items and packaging, or tracking information for lost packages.
• Proof of Value: Sales invoice or purchase receipt.
• Proof of Shipping: Shipping label and receipt.

3. Submit the Claim

• Use the carrier’s online platform or customer service to initiate the claim.
• Complete the claim form with all necessary details and submit the required documents.

4. Follow Packing Guidelines

• Ensure your packaging meets carrier standards to avoid denied claims. Use sturdy materials and proper protection.

5. Be Honest and Accurate

• Declare the actual value of your shipment. Overstating can lead to claim denial.

6. Track and Follow Up

• Monitor your claim status through the carrier’s portal and respond promptly to any additional information requests.

7. Resolution and Appeals

• If approved, you’ll receive compensation based on the coverage purchased. If denied, review the reason and consider filing an appeal with additional evidence.

When Shipping Insurance Is Worth It For An E-Commerce Business

Deciding whether to purchase shipping insurance is a nuanced decision that hinges on several key factors:

• The volume of parcels you ship
• The value and type of products you send
• Your capacity to absorb potential financial losses

One of the most critical aspects to consider is how these factors play out in the context of international shipping, where additional challenges can significantly impact your decision.

International Shipping

Shipping internationally comes with its own set of challenges, especially when sending parcels to high-risk destinations. It’s essential to understand that customs regulations can vary widely, and delays are common as packages go through inspections. These delays can lead to additional risks of damage or even loss, so having comprehensive shipping insurance that covers customs-related issues is important.

Different countries also have unique restrictions on what can be imported. For example, items like electronics, perishables, or anything containing lithium batteries might face stricter scrutiny or even rejection. Standard shipping insurance may not cover such situations, making it necessary to explore third-party insurance options that specialize in international shipments.

Shipping to regions with political instability, higher theft rates, or logistical challenges—such as parts of Central America or Africa—requires even more caution. Standard carrier insurance might not provide coverage for these areas, so it’s worth looking into specialized providers who offer coverage tailored to high-risk destinations. These insurers often provide additional services like real-time tracking and enhanced security measures to ensure that your shipments arrive safely.

For these shipments, you can also take proactive measures such as using tamper-evident packaging, requiring signatures upon delivery, and communicating these steps to your customers. By explaining the extra precautions you are taking, you help set their minds at ease and demonstrate your commitment to ensuring a smooth delivery experience, even under challenging conditions.

These examples use a narrative style to provide more context and depth to the sections. Would you like to integrate these into your article or need further modifications?

Customer Experience

When a customer experiences a delivery issue, it’s crucial to provide clear and proactive communication to maintain their trust and satisfaction. Start by setting expectations early in the process. Clearly outline your shipping and insurance policies on your website and in order confirmation emails, so customers know what to expect if something goes wrong.

If a claim is necessary, let your customer know immediately. Send a personalized email explaining that you’ve initiated a claim on their behalf, and provide a brief overview of the steps involved. Assigning a dedicated representative to their case can also go a long way in building trust, as it gives customers a specific point of contact who is familiar with their situation.

Throughout the claims process, keep the customer informed, even if there are no new developments. A weekly update email can reassure them that you are actively managing the situation. Once the claim is resolved, follow up to ensure the customer is satisfied with the outcome. Consider offering a discount or a small gift as a gesture of goodwill, showing that you value their business and are committed to providing excellent service even when things don’t go as planned.

Additional Considerations

• If you ship a lot of high-value products, shipping insurance becomes more profitable.
• For international shipments, especially those valued over $100, insurance is often advisable.
• Be aware of what products can be insured. Each carrier has a list of products they will and will not cover (e.g., luggage, liquids, hazardous materials, silver). Check your carrier's shipping terms and conditions for details.

Conclusion

Shipping insurance can be a valuable tool for e-commerce businesses, especially for high-value or international shipments. While carriers like Canada Post, FedEx, UPS, and Purolator offer basic coverage, it may not always be sufficient. Third-party insurance can provide more comprehensive protection, particularly for bulk shipments or shipments to high-risk areas.

When deciding whether to purchase shipping insurance, consider the potential financial loss and its impact on your business. Proactively managing risks—through robust packaging, honest declarations, and diligent claim filing—can prevent issues and enhance customer satisfaction.

Remember, swift resolution and transparent communication are key to maintaining customer trust. If delivery issues do arise, being prepared with the right insurance and a clear claims process can help protect your business reputation and keep your customers happy.

For added protection, consider using tools like Buster Fetcher to track shipments and recover costs for late deliveries. By taking these steps, you can better safeguard your business and deliver exceptional customer service.