Resourceful business owners have learned that it’s important to reduce the sting of shrinking margins and protect all revenue. One of the best ways to do this is through insurance. Why insurance? Because if you don’t insure your business could lose a bundle.
To get the maximum benefit out of insuring, it is vital to know some insurance basics so that if something happens to a shipment, you can be fully reimbursed for the lost or damaged item, freight and other associated costs.
Here are some fundamentals:
1. Who: Know where you’re getting your insurance from. Is it a carrier or a third-party? Getting insurance from a carrier may seem the easiest, but third-party insurance is generally less expensive and provides fuller coverage. While carriers charge about 85 cents for every $100 of insurance (with a $2.55 minimum), third-party companies charge about 55 cents for every $100. For example, ShipWorks Insurance (managed by InsureShip) will charge as little as $1.10 for a package insured at $200, whereas UPS and FedEx have $2.55 minimums for the same package.
2. What: Know what type of insurance you’re getting. Is it declared value or cargo insurance? These terms are often interchanged, but they’re not synonyms and their coverage varies greatly.
One of the most significant distinctions is that with declared value the shipper must prove that the carrier’s negligence directly resulted in the loss or damage to cargo. This can be very difficult to prove and results in packages that aren’t covered. Comparatively, cargo insurance attaches to the cargo while in transit with coverage being extended warehouse to warehouse. Cargo insurance pays regardless if the loss or damage was due to the carrier’s negligence.
3. How much: Insure items for what they are worth in retail channels, or what is most likely to be spent to replace it. You are unlikely to get more insurance compensation for the item than its current retail value, so do not pay any additional fees that result from higher insurance values.
You should also know what you’re really paying for insurance. Most carriers have a $2.55 minimum for insurance values from $0-$300, and then they charge 85 cents for every $100 of insurance after that. Since over 80-percent of all packages mailed are under the $300 insurance value limit, it is usually better to go with a third-party insurance provider who will charge 55 cents per $100 of coverage. If you’re sending a package that only needs $100 of insurance, it will cost you $2.55 with a carrier and only 55 cents with a third-party carrier like ShipWorks Insurance (managed by InsureShip). That’s a huge savings!
4. Combining insurance: Have you ever wanted to combine third party insurance with the complimentary insurance available from carriers? It’s doable, but we don’t recommend it. Why? It will take a tremendous amount of time and will cost more.
Let’s pretend you’re shipping something and need $200 of insurance. You can use $100 of insurance that is included with many carriers and purchase the remaining $100 of insurance from a third-party insurance provider. Sounds easy, right? It may seem simple, but it’s not as great as it may initially appear. Here’s why:
A. You’ve spent much more than you need to. Most carriers will charge $2.55 and it will be declared value coverage. If you use third party insurance, like ShipWorks Insurance (through InsureShip), it will $1.10 and is full cargo insurance, not declared value.
B. If you have to file a claim, you will be doing it twice. If you decide to try and split insurance coverage and you have to file a claim, you will need to first file the claim with the primary insurer. If the primary insurer denies your claim, the secondary insurer is required by law to abide by the first carrier’s decision. If the primary insurer accepts your claim, you are then required to file a second claim with the secondary insurance carrier. You now get to wait for two different companies to process your claim and pay. Sound painful? We agree. Avoid the headache and go with one insurance provider.
5. Filing a claim: Start your claim as soon as you realize a package is damaged, lost or stolen. Carriers and third-party insurance companies have different cutoff times for filing, so make sure you file soon so that you don’t miss the allotted window.
The documentation you need also varies by carrier or third-party insurance provider. With InsureShip, if your claim is for a lost package, start by filing a tracer with the carrier to see if they can locate the shipment. The entire process can be managed online, once the claim and supporting documents (such as pictures) are submitted, it will take about 7-10 business days for payment. When you use a carrier’s insurance, you need to provide evidence of insurance and mailing the shipment, and it usually takes 30-45 days for a payment.