Why should I shell out an additional amount to pay for cargo insurance? The short answer is: because with that “extra” amount, you will be compensated in case your cargo is lost or damaged. However, let’s define cargo insurance in a more technical way. Cargo insurance generally covers the loss or damage, in whole or in part, of the property covered by the insurance if such property is damaged or lost in transit and all other essential requirements are met. This sentence basically incorporates the conditions before you can claim your insurance proceeds. It is very important to note that not each and every type of merchandise loss and damage entitles the owner of the cargo insurance policy to claim the insurance proceeds.

Key general insurance concept

These general insurance concepts also apply to cargo insurance:

The claimant must have an insurable interest. Insurable interest is a matter of law. Simply put, you have an insurable interest on a cargo if it will be lost when that cargo is damaged or lost.

Another general concept is that the “insured perils” must be the cause of the damage or loss. Carefully study the insurance policy you bought or one that is offered to you. If it’s unclear, ask the provider or insurer what events or circumstances the policy covers. This is vital. If the cargo insurance you purchased did not list the cause of the damage, you cannot claim the insurance proceeds. To illustrate, if the loss was due to Typhoon Yolanda and typhoons, or “acts of God,” or if natural disasters were not on the list, you may lose your cargo without compensation for your loss.

Filing your claim is also another vital thing to consider. Some may require you to inspect your cargo upon delivery or within twenty-four hours. Some may provide a longer period, such as a few days. Some may provide a distinction between a cargo delivered with a noticeable impact or damage to the surface of the box or package. The time allotted for visible surface damage is shorter. The bottom line is be sure to check the allowed period within which you must notify the carrier of the fact that the cargo is damaged and the period within which you must notify your insurance provider of your claim.

When do you have the property?

This is important because you must purchase cargo insurance that covers the supply chain segment when you are considered the “owner” of the merchandise. This becomes very significant especially for international transactions. Remember our basic concept: if you are not covered, not compensated. Two terms to keep in mind:

“FOB Origin” and “FOB Destination”

The first refers to the Free on Board origin, in which the buyer considers himself the owner of the merchandise once it has been delivered to the carrier. The second means free destination on board. In the latter, the seller retains ownership of the items transported by the carrier until the merchandise reaches its destination.

Contracts and stipulations

The legal provisions serve as general rules to follow to resolve disputes. Therefore, if the buyer and the seller enter into a contract or stipulation, it will be given in due course. The agreements, terms and stipulations between two contracting parties will serve as law between them. Having said that, if the seller and buyer have agreed who takes responsibility, then that will be considered and respected.

Cargo insurance provider versus general insurance provider

Will you prefer one over the other? Well, one may have an advantage over the other. While cargo insurance providers specialize in this field and are therefore expected to be masters of their craft, it can also be just as attractive to take advantage of cargo insurance from a provider from which you purchased other types of insurance. You can benefit from discounts for making use of multiple coverage. The deciding factor is whether your supplier has knowledge of supply chain management and supply chain processes. Knowing this will give you more confidence that you are purchasing your cargo insurance from the right provider.

Covered mode of transport

As mentioned above, if a particular situation is not covered by the terms written in the insurance policy, the loss of the property will be “charged to experience” and you will not be able to claim the insurance product. For example, if the insurance you purchased covers the transport of goods by sea, then you cannot claim the insurance proceeds if the goods are lost during air transport. Even in the situation where the policy specifically states that it covers the transportation of goods through a trucking service, if the goods are lost while being transported by rail, the claimant cannot claim. So before you buy a deal, check which modes of transportation are covered. It is worth reading the entire content of the cargo insurance policy, including the “fine print” and asking for clarification if you have any questions.

Cargo insurance is a comprehensive topic, but it is worth learning some basic principles so that when you buy one, you have more confidence that you can successfully claim the proceeds when adverse incidents occur that result in the loss of your property.