Understanding Cargo Insurance Coverage: Demystifying 6 Common Myths and Misconceptions

by | Industry

In the world of cargo insurance, common myths and misunderstandings can be as significant a risk to your cargo as the perils of the open sea. This article isn’t just another dry rundown of insurance facts. Instead, think of it as your practical guide through the maze of cargo insurance, where we’ll debunk common myths and clarify some tricky misconceptions. 

Whether you’re a seasoned shipper or new to the game, understanding the ins and outs of cargo insurance is key to protecting your interests without getting lost in a sea of jargon and complexity. So, let’s dive in and navigate these waters together, ensuring your next shipping venture is both informed and secure.

Myth 1: All Risks are Covered by Default

One of the most prevalent myths is that cargo insurance covers all risks by default. However, ‘All Risk’ cargo insurance coverage, a term commonly used in the insurance industry, doesn’t necessarily encompass every possible scenario. While it does provide a broad range of protection against physical loss or damage, there are notable exclusions. For instance, losses due to inherent vice, delay, or market loss and spoilage due to being held at customs are typically not covered. Understanding these limitations is crucial for shippers to avoid unexpected exposures.

Myth 2: Cargo Insurance is Unnecessary for Small Shipments

Good things DO come in small packages! Many believe that insurance is redundant for small-scale shipments, considering them less prone to risks. This assumption can be dangerous. In reality, the shipment size rarely correlates with potential damage or loss. Small cargo can be just as susceptible to mishandling, theft, or environmental factors. Fragile cargo such as valuable artwork and antiques may be small in scale but are particularly vulnerable to being lost, stolen, or damaged in transit and may require additional coverage. Thus, irrespective of the shipment size, insurance provides peace of mind and financial protection.

Myth 3: Carrier’s Liability and Cargo Insurance are the Same

Another common confusion is equating carrier’s liability with cargo insurance. Carrier’s liability is limited and often based on the weight of the cargo, not its value. In many cases, the compensation offered under this liability is insufficient to cover the total loss or damage. On the other hand, Cargo insurance is designed to cover the value of the goods, offering more comprehensive protection.

Myth 4: Cargo Insurance Coverage Guarantees Financial Profit in Case of Loss

Some shippers operate under the misconception that cargo insurance guarantees a financial profit in the event of a loss. Insurance is intended to indemnify the insured, not to lead to a financial gain. The compensation is usually based on the declared value of the goods or their market value, minus any deductibles, and subject to the policy’s terms and conditions. Aside from financial protection, cargo insurance safeguards your business and your relationship with your client. Many relationships sour at the time of a loss when the consignee realizes they were never offered insurance. A shipper can also be held accountable if they do not offer insurance to their customer.

Myth 5: Filing a Claim is Complicated and Rarely Successful

Many shippers are wary of cargo insurance, believing that the claim process is overly complicated and rarely successful. While the process can be detailed, it’s designed to ensure fair and just compensation. The key to a smooth claim process is proper documentation, timely loss notification, and a thorough understanding of the policy terms. With these in place, filing and receiving claim settlements can be a straightforward process.

Myth 6: Cargo Insurance Covers Delays in Delivery

It’s a common misconception that cargo insurance covers delays in delivery. Most cargo insurance policies do not protect against losses incurred due to delayed shipments. These policies are designed to cover physical loss or damage to the goods, not financial losses resulting from delayed delivery. One notable exception is that perishable goods may be covered if the delay causes losses. However, it is important to review your specific policy for inclusions and exclusions. Understanding this limitation is essential for businesses where timely delivery is critical.

Understanding cargo insurance is imperative for all stakeholders in the shipping and logistics industry. Dispelling these myths and misconceptions is the first step toward recognizing the true value of cargo insurance. It provides a vital safety net, protecting against unforeseen losses and ensuring that the journey of your goods from origin to destination is safeguarded. The seasoned insurance professionals at Magaya Insurance Services can tailor a policy that meets your specific needs and circumstances. Contact them today to request a no-obligation cargo insurance quote!

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