A container ship sailing into the sunset

Cargo vs. Freight Insurance: What’s the Difference?

Nov 13 2020

Every year, around 1,390 shipping containers that are transported via container ship are lost. The estimated value of such a loss is greater than four trillion dollars. The statistics for damaged goods isn’t any better. In the United States alone, 21% of larger online purchases (furniture, exercise equipment, etc.) arrive at the customer’s doorstep damaged - and this statistic only accounts for goods that were shipped within the country.

In such cases where loss or damage is incurred, it’s natural for the senders of the shipment to look for compensation. This is where cargo insurance and freight insurance come in. But what exactly do these policies cover? And which one should you consider for your business?

Whether you are a seller, manufacturer, or freight forwarder, welcome! In this article, we will help you answer the above questions by covering the similarities and differences between these two insurance policies. Let’s get started!

Overhead shot of shipping containers

Cargo Insurance and Freight Insurance: The Similarities

Because the term cargo and freight are often interchangeably used, there is some confusion around cargo insurance and freight insurance (freight forwarder insurance). Before we talk about their differences, let’s first cover the main similarities between the two:

  • Both are insurance policies intended to protect goods that are transported in the event that they are lost or damaged.
  • Both insurance types can cover goods that are shipped domestically and internationally through various modes of transport (e.g. via land, air, sea, or a combination).

Cargo vs. Freight Insurance: Who They Protect

All other differences between these two types of insurance boil down to who they are meant to protect. Freight insurance protects the freight forwarder or carrier. Meanwhile, cargo insurance is designed to protect the sender of the goods (e.g. manufacturers, sellers).

What Do These Insurance Policies Cover?

Freight Insurance

Manufacturers may see freight insurance in their quote and automatically think that they are fully protected in case the shipped goods are lost or damaged. However, this is not the case, simply because this insurance policy is not designed for that.

The main objective of freight insurance is to protect the freight forwarder or carrier from any liability for the financial loss sustained by the sender because of the damage or loss of the shipment. For a claim to be payable to the sender, the loss or damage of the goods must be proven to be caused by the freight forwarder’s negligence or errors.

Additionally, under freight insurance, the amount paid out is based on the weight of the goods instead of the cargo’s full value. As an example, one kilogram of lost gold will likely receive the same payout as one kilogram of lost cotton under this insurance policy.

Cargo Insurance

Cargo Insurance is essential if you, as the sender of the shipment, would want to be covered for the full value of the shipped goods in the event of loss or damage. Such events do not need to be caused by errors or negligence on the part of the freight forwarder or carrier in order to receive payout. Cargo insurance can provide coverage for various risks such as faulty loading/unloading, accidents, fire, theft, heavy weather, and various other natural disasters.

Cargo vs. Freight Insurance: How They Are Set Up and Who Pays For Them

Freight Insurance

Though freight insurance is not mandatory, most freight forwarders secure this kind of insurance to make sure that they are protected against liabilities arising from situations wherein errors/negligence leads to lost or damaged goods.

This insurance is payable by the freight forwarder but it is passed on to the sender/customer when the forwarder’s service is used. A fee for freight insurance would be typically included in the sender’s shipping quote and is then included in what the sender pays for.

If you are looking to secure freight insurance for your business, you would need to contact a trusted insurance broker like KASE Insurance. In doing so, you will gain access to various options for reliable coverage while also getting the most value for money. Striking such a balance is important because steep freight insurance costs will show up in your customer’s quote and the cost might be off putting to some.

Cargo Insurance

Securing cargo insurance is usually up to the sender of the shipment. In some cases, however, you can arrange for cargo insurance through your freight forwarder or carrier - thus, they will be responsible for coordinating with the insurance broker/provider and obtaining the insurance policy for you.

Unlike freight insurance, which gives payouts depending on the weight of the shipment, cargo insurance is meant to reimburse the full value of the shipped goods if ever they are lost or damaged in transit. This comprehensive insurance policy will also cover various risks (as we will discuss in the next section) it takes into account various details such as:

  • Where the cargo comes from and where it is going
  • What route the freight forwarder or carrier is taking
  • The nature of the cargo - if it is hazardous, fragile, perishable, etc.
  • The weight, size, and dimensions of the cargo

Whether you are a sender or a freight-forwarder, you will be able to secure cargo insurance from a trusted commercial insurance broker. Here at KASE Insurance, we will assess the unique needs of your business so that we can provide you with a tailored cargo insurance policy.

Three cargo trucks delivering shipments

Cargo vs. Freight Insurance: Covered Modes of Transportation

Both cargo and freight insurance policies can be set up for all types of domestic or international shipments. As such, these insurance policies can be set up for various modes of transportation, be it on land, air, sea or a combination.

Get Your Insurance From a Trusted Insurance Broker

KASE Insurance is a one-stop contact for all your business insurance needs. We are an award-winning Toronto-based commercial insurance broker that you can rely on. Through our years of service, we have worked with businesses of all sizes, coming from a variety of industries.

If you are in need of cargo insurance, freight insurance, or any kind of business insurance, we can put together a customized policy that gives you the coverage that you need. If you have any questions, we’d be very happy to help. Contact us today or get a quick quote to get started!

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