What You Need to Know About Insurance Coverage for Export Shipments

Insurance agent meeting with prospective clients
••• PhotoAlto/Frederic Cirou/Getty Images

Insurance is as vital to your product delivery plans as safe vehicles and sturdy cartons. When you ship important cargo over great distances, many variables are out of your control. You don't want to take any chances on your delivery floundering in a massive mid-ocean storm or your airline losing track of your cargo. Insurance is a plan to be compensated for your cargo's value in case of destruction or mishandling.

Insurance coverage for export shipments is traditionally provided either through your airline, logistics specialist, freight forwarder, or from an insurance company specializing in ocean and air cargo. There are three types of coverage commonly provided for export shipments: perils, broad-named perils, and all-risks. Let's discuss the most robust policy, all-risk.

An all-risk policy covers all physical loss or damage from any external circumstance, excluding loss or damage caused by war, riots, strikes, or civil disobedience. It generally costs about 1-2% of the declared value of your shipment. Coverage varies according to your product type and your destination point, you can get coverage for a portside-to-portside shipment or from the factory to your customer's door. Be sure to ask your policy provider which type best suits your needs.

Keep in mind, though, that no insurance coverage protects against a customer's​refusal of your cargo or against his or her failure to secure a required import license that delays shipment clearance, so plan accordingly.

Import and Export Insurance Considerations

Here are four points to consider when securing air or marine insurance:

  1. Get enough coverage. Talk to your transportation company about what kind of coverage you expect should your cargo get lost or destroyed. Many people ask for coverage in the amount of 110% of their transaction value, including freight costs and the insurance. The extra 10% is to compensate your lost time, profits, and any legal or other expenses you might incur from the ordeal. You do not want to find out later (insurance claims typically take anywhere from one to six months to settle) that you're only covered for 20% of your transaction value.
  2. Decide who will secure the insurance. How much control do you want should something go wrong with your shipment? Your terms of sale usually determine this. Your liability ends at the point in which the title to the goods changes from seller to buyer. If you're guaranteed payment for your shipment regardless of its condition upon arrival, you might be more easygoing about letting your customer handle insurance. However, if you're shipping open account, we recommend that you not only secure the insurance yourself but secure it through a U.S. company to see that any claims will be settled expeditiously. Don't forget, your customer is usually the first to discover damage or loss of cargo. He or she must take all reasonable measures to minimize the loss or damage and to set aside merchandise to be kept as evidence for claim settlement.
  3. Decide who pays. Sometimes your customers will request the insurance and offer to pay, and sometimes they won't. How you and your customer assign financial responsibility for insurance depends on the cost of the coverage and how the expense will affect each party's bottom line. Negotiate the point to achieve a win-win situation.
  4. Leave a paper trail. No matter who arranges and pays for the insurance, there are specific documents you must be prepared to present in the event of a claim. When you file a claim, you must present the following:
    1. A letter of claim along with a copy of the bill of lading covering the shipment.
    2. A copy of an insurance certificate prepared by your transport company or, if you purchased insurance through an independent carrier, by you.
    3. A survey report issued by a claim agent, plus an invoice showing the amount of damage or loss.

Do not miss filing deadlines as time is of the essence. One export shipment that fails to reach your customer's door is one too many. The repercussions include bad reviews, severe financial loss, and the collapse of your business. Securing appropriate insurance coverage protects your enterprise, your cargo, and your customer's interests.