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shipping insurance
Midsize business

What is shipping insurance and when should you use it?

According to a study by Rensselaer Polytechnic Institute, 1.7 million shipments are stolen or lost daily in the U.S. While this number correlates with the rise in online shopping, shipping issues also create added costs for businesses. 

If your business regularly ships high-value items, insurance is one way you can protect it against the resulting costs from losses. With shipping insurance, your business can claim reimbursement for any package that is lost, damaged, or stolen while in transit.

What is shipping insurance?

Shipping insurance provides financial protection against any unexpected loss, damage, or theft before a package reaches its destination. 

Most carriers cover a shipment’s declared value up to a certain amount at no added charge. (For example, Fedex, UPS, and USPS domestic priority mail express each cover up to $100). But this limited coverage is not the same as insurance. 

Shipping insurance reimburses up to the full shipment value and freight, regardless of how the damage or loss.

Insurance policies can be purchased from a carrier or a third-party insurer and are available for single shipments or as a longer-term customized plan. 

While anyone can opt for shipping insurance, it’s typically used by businesses that send packages in high volume or of high value. 

  • E-commerce businesses that rely on shippers to fulfill customer orders
  • Manufacturers and distributors of large or high-value items
  • Businesses with international shipments that go through multiple modes of transportation 

For these businesses, every shipping mishap disrupts the supply chain and consumes extra resources. A shipping insurance policy helps protect against these order fulfillment losses. 

In the unfortunate case a claim needs to be filed, QuickBooks Enterprise accounting functionality makes it easy as a few clicks to enter deposits received from insurance claims against damaged or lost shipments. 

What is the difference between buyer and seller shipping insurance? 

So far, we’ve approached shipping insurance from the point of a business or seller. Seller shipping insurance is the most common, as items are considered a seller’s responsibility until the delivery has been received. 

Sometimes, a buyer can also add shipping insurance to their purchase. This is common in e-commerce, where buyer shipping insurance is offered for a small fee during checkout. 

Buyer and seller shipping insurance work the same way. If an insured shipment is damaged or lost during delivery, the insurance holder—whether buyer or seller—will receive a reimbursement.

There is one main difference: With buyer shipping insurance, the reimbursement is usually given through a refund on their order. With sellers, reimbursement is through the shipment carrier or a third-party insurance agency.

When is it smart to buy shipping insurance?

Shipping insurance can be a good investment for some businesses that deliver products. It’s particularly recommended in the following cases: 

  • For designer labels or luxury items: If an item has a high market resale value, it’s naturally more susceptible to theft.
  • For international deliveries: Passing through multiple modes of transportation increases the chances of damage or loss.
  • For electronics, art pieces, fragile items: These are more prone to damages, and typically more expensive than the declared value coverage. 
  • During peak shopping seasons (Christmas, Cyber Monday, Black Friday, etc.): More shipments increases the likelihood of damage, lost packages, and theft.

With customizable policies, and the option to insure a single shipment for a small additional percentage, shipping insurance can be a cost-effective way of reducing the risk of loss during order fulfillment.

How much does shipping insurance typically cost?

Whether a business goes with a carrier or third-party provider, shipping insurance costs for a single shipment is generally between 1.5–4% of the item value. 

For example, insurance for a value between $200.01–300.00 is about $4.75 through USPS, and $2.31–3.84 from shipping insurance company Shipsurance. Actual insurance costs will depend on the type and mode of shipment.

Businesses can also opt for blanket shipping insurance to cover all deliveries made over a period of time. These policies are flexible and offer more competitive insurance rates, dependent on a number of variables, like the provider, the type of goods being shipped, and the mode of transportation.

How does shipping insurance work? 

For businesses that regularly ship highly valuable goods, shipping insurance is a good option for hedging against shipping losses. If insured shipments are damaged or lost, businesses can file claims to reimburse their financial losses. 

Claims can be filed online, through fax, or snail mail within a designated time frame. In most cases, damaged shipment claims can be filed immediately upon receipt, while lost shipments may require a business day or more to accommodate delivery delays. However, most claims must be made within a few months of the shipment date.

Any documentation, such as a certificate of insurance, shipping label, photos of any damage, or other supporting proof, will expedite the claims process. The claims processing time depends on the insurance provider and can result in being fully approved, partially approved, or denied. 

If a claim is approved, the business will receive its reimbursement shortly after. Denied claims will include reasons for the denial, and can be appealed by the business.

3 Benefits of shipping insurance

Every shipment comes with a risk of damage or loss. Shipping insurance protects your business against these risks, providing full coverage and compensation in case of any loss. 

1. Added assurance and security

With so many other concerns in running a business, knowing that deliveries are covered is a big relief. Should any shipment hit a snag, you don’t have to worry about shouldering the cost of shipping or disrupting your overall business operations. 

2. Better customer service 

A recent survey shows 84% of customers with a bad delivery experience never purchase from the business again. To prevent this from happening, your business has to be ready to send an immediate replacement or reimbursement in case of any damages or loss. Shipping insurance helps you do this without a second thought.

3. Less hassle and paperwork 

Businesses that send shipments regularly can benefit from having a centralized insurance provider. Rather than calculating the landed cost and coverage for individual shipments, and filling out paperwork for every package, a shipping insurance policy covers all shipments within a period of time. 

What are the risks of shipping without insurance?

Shipping without insurance leaves a business unprotected should anything happen to the package before it’s delivered, adding possible fulfillment costs to the business.

Even if a major carrier provides a certain amount of coverage, it’s often not enough to cover the entire expense of the item. Damaged or undelivered shipments require sending customers a replacement item, paying for a second expedited shipment, and possibly offering a discount for the inconvenience—all shouldered by the business.

The number of these damaged or lost shipments can add up, and can negatively impact your bottom line. As you can see, one way to reduce risk related to order fulfillment is via shipping insurance. 

When a claim needs to be filed, QuickBooks Enterprise has you covered with the ability to calculate landed costsfor any bill you add inventory and shipping items to. Once you create a landed cost account in QuickBooks calculating your total costs for a claim is no longer a headache.

Final Thoughts

While all shipments have minimum coverage from the carrier, shipping insurance offers greater protection and convenience for a relatively small investment. 

Shipping insurance reimburses the full value of any damaged or lost shipments, allowing you to maintain a healthy cash flow, deliver immediate customer support, and enjoy peace of mind.

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