When running an ecommerce business, understanding the complexities of shipping insurance is vital. By getting familiar with the ins and outs of insurance, you’ll empower yourself to make more informed decisions, communicate effectively with insurance providers, and build customer trust through reliable shipping services.
So, how does shipping insurance work? How much does it cost, and who pays for it? In this article, we’ll answer these questions and more.
What Is Shipping Insurance?
Shipping insurance provides coverage for the value of shipped goods against damage, loss, or theft during transit. When your shipments are insured, your business (and/or customers) are compensated for the full value of products when things go wrong during the delivery process. In addition to mitigating financial risk, shipping insurance offers peace of mind to sellers and buyers alike.
Shipping insurance offers comprehensive coverage for shipments, whether domestic or international. It protects both the seller and buyer by ensuring that if packages are lost, stolen, or damaged during transit, they are compensated for the declared value of the goods. With shipping insurance, you can select coverage that best suits your business, whether you're shipping fragile items, high-value goods, or standard packages.
How Does Shipping Insurance Work?
Shipping insurance involves four main steps: Choosing a provider and plan, paying insurance premiums, documenting the shipment, and—if necessary—filing a claim.
- Choose an insurance provider. First, evaluate the value of your products to determine the insurance coverage you’ll need. Next, choose a reputable shipping insurance provider that offers coverage suited for your business needs. Many carriers and third-party providers offer shipping insurance.
- Pay insurance premiums. When a customer makes an online purchase, declare the value of the items to the insurance provider and pay the required premium. To learn who’s responsible for covering the cost, see the section “Who Is Responsible for Shipping Insurance?”
- Document the shipment. Keep thorough documentation of the shipment, including invoices, packing slips, and any other relevant paperwork. If you need to file a claim, these documents will help you prove the value of the lost or damaged items.
- File a claim. Hopefully, most shipments will go off without a hitch. But when things go wrong, you’ll need to file a claim with your insurance provider to be reimbursed. For more information, see the section “How to File a Shipping Insurance Claim.”
Shipping Insurance vs. Declared Value Services
Many carriers offer a declared value service. While declared value services are similar to shipping insurance, they’re not exactly the same.
Shipping insurance is a separate service provided by third-party insurers, offering comprehensive protection against damage, loss, or theft. You can choose between various insurance providers, which allows flexibility in coverage options and premiums.
On the other hand, a carrier's declared value is a service provided by the shipping carrier, representing their maximum liability in case of loss or damage. It generally covers loss or damage (if you can prove the carrier is at fault) but doesn’t cover theft that occurs after a delivery is completed. You may need to pay a fee to declare a value higher than $100.
While most carriers offer a declared value service, it often doesn’t provide the same level of protection as third-party shipping insurance. Third-party services, like BuySafe’s Package Protection, offer greater flexibility and cover more scenarios, such as theft after delivery (porch piracy) or accidental damage. Carrier-declared value services, on the other hand, may only cover damage or loss if the carrier is directly at fault. The ability to choose customized coverage, including add-ons like identity theft protection, makes third-party insurance a more robust option for businesses looking to protect their shipments.
How Much Does Shipping Insurance Cost?
Shipping insurance premiums are generally 1-3% of an item’s total value. For businesses shipping large quantities or high-value items, the cost of insurance can be a critical factor in determining overall profitability. Some businesses build the cost of insurance into their pricing structure, while others offer it as an optional add-on for customers at checkout.
To better understand the cost breakdown and how to calculate it, visit our guide on Shipping Insurance for an in-depth look.
Who Is Responsible for Shipping Insurance?
In many cases, the seller arranges and pays for shipping insurance to protect packages during transit. If you decide to go this route, you’ll pay insurance premiums and handle insurance claims on your customers’ behalf.
For a less expensive alternative, provide customers the option to add insurance at checkout. If they choose to purchase insurance, they’ll pay a small fee and file claims themselves if shipping issues occur.
Interested in this more affordable option? Norton Shopping Guarantee with Package Protection by EasyPost is a Shopify app that lets customers add package protection to their orders at no cost to your business. To learn how Shopify users can benefit from added protection, visit Shopify Shipping Insurance for more details.
What Does Shipping Insurance Cover?
Coverage depends on the insurance provider and the terms of the policy, but in general, shipping insurance includes protection against the following:
- Damage caused by accidents or mishandling
- Packages that are lost or stolen during shipping, or delivered to the wrong location
- Theft after packages have been delivered (porch piracy)
Standard shipping insurance policies usually have exceptions and limitations. High-value items, fragile products, and international shipments may require additional or separate insurance. Make sure to carefully review the terms and conditions of your policy to understand the specific coverage provided and any exclusions that apply.
Shipping Insurance for International Shipments
International shipping involves greater risks compared to domestic shipments due to longer transit times, multiple handlers, and the potential for customs delays. Shipping insurance for international deliveries offers peace of mind by covering the increased likelihood of loss or damage. Some insurance providers even cover packages from the point of origin to the final destination, including the customs clearance process. When shipping overseas, it’s crucial to understand the specific risks associated with different countries and how insurance can protect your business from unforeseen expenses.
How to File a Shipping Insurance Claim
Whether you’re filing a shipping insurance claim with a carrier or third-party insurance provider, you’ll follow the same basic steps.
- Document the damage or loss. Instruct customers to take clear photos of the damaged items or provide evidence of loss.
- Notify the carrier. Report the damage or loss to the shipping carrier as soon as possible, providing them with tracking numbers, shipment details, and the nature of the issue.
- Contact your insurance provider. Promptly submit a claim with the required documentation, including invoices, packing slips, and photos. The provider might require additional information, such as proof of value, invoices, or other relevant paperwork.
- Cooperate with inspection requests. Sometimes, insurance providers request an inspection of the damaged items. Work with customers to complete this inspection.
- Follow up. Stay in communication with the carrier, insurance provider, and customer throughout the claims process.
Remember to check your policy’s terms and conditions to find specific instructions for filing a claim.
What Happens if a Claim Is Denied?
In some cases, shipping insurance claims can be denied. The most common reasons for denial include insufficient documentation, shipping items that are excluded from coverage (like perishables), or waiting too long to file the claim. To avoid denial, ensure that all required paperwork is submitted promptly, including proof of shipment, proof of value, and evidence of damage or loss. In case of denial, many insurance providers allow you to appeal the decision or request further clarification on what was missing from the original claim.
Is Shipping Insurance Worth It? When To Begin Insuring Packages
Determining when to start offering shipping insurance involves various factors, both quantitative and qualitative. If you meet several of the following criteria, it could be a sign it’s time to add insurance to your shipping strategy.
- High volume of shipments. Higher shipment volumes increase the likelihood of unforeseen events during transit, and insurance is a valuable risk mitigation strategy.
- High-value goods. The financial risk associated with potential damage, loss, or theft of valuable goods is higher, making insurance a smart investment.
- Frequent international shipments. International shipping involves additional complexities and risks.
- Fragile items. If you ship lots of fragile items that are prone to damage during transit, shipping insurance helps when inevitable package damage occurs.
- Frequent loss, theft, or damage. Been experiencing frequent incidents of damaged or lost shipments? Shipping insurance will quickly pay for itself.
Find out if Shipping Protection is a smart investment for your business.
Shipping Insurance At Worke
Let’s say you ship a customer a portable record player. The product costs $49.85 including tax. Shipping costs another $11.00. If you add shipping insurance for 3% of the record player’s value, the total cost to ship the product is $62.35. The customer tells you the carrier notified them of delivery, but the package is nowhere to be found. What happens now?
Shipping with insurance. If the package was insured, you file a claim with the provider. After you present the required evidence and information, the provider reviews and approves your claim, then reimburses you for the value of the product. In the meantime, you ship the customer a new record player free of charge. You don’t lose money on the sale, and the customer is satisfied with their purchase.
Shipping without insurance. If you don’t offer shipping insurance, you have a few options. Since the package was stolen after delivery was completed, you’re within your rights to tell the customer you can’t do anything about their problem. Beware, though—they’re likely to lose trust in your brand, leave a negative online review, and discourage others from shopping from you.
To avoid this, you ship them a new record player. While the customer is now satisfied, you’re now out the cost of the original record player, plus shipping. That’s $62.35 out of your monthly revenue. Ouch!
Norton Shopping Guarantee With Package Protection by EasyPost
Many businesses want to offer shipping insurance but can’t justify the cost yet. If that’s you, consider giving shoppers the option to add shipping insurance at checkout. For just a small percentage of their order value, customers can protect their packages from unforeseen shipping disasters—and your business doesn’t need to worry about a thing!
To get started, download the Norton Shopping Guarantee with Package Protection by EasyPost app on the Shopify store. In addition to optional package protection at checkout, customers will have access to a shopping guarantee that includes a purchase guarantee, lowest price guarantee, and identity theft protection.
