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, what is shipping insurance? How does it work? How much does it cost, and who pays for it? In this article, we’ll answer these questions and more.
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 involves four main steps: Choosing a provider and plan, paying insurance premiums, documenting the shipment, and—if necessary—filing a claim.
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.
Shipping insurance premiums are generally 1-3% of an item’s total value. If you’re curious about carriers’ declared value fees, check out this article. It provides cost tables for USPS, UPS, and FedEx.
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.
Coverage depends on the insurance provider and the terms of the policy, but in general, shipping insurance includes protection against the following:
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.
Whether you’re filing a shipping insurance claim with a carrier or third-party insurance provider, you’ll follow the same basic steps.
Remember to check your policy’s terms and conditions to find specific instructions for filing a claim.
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.
Finally, the example below illustrates the difference shipping insurance can make in your revenue and customer experience.
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?
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.
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!
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.
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