Shipper tips

June 16, 2023

- Written By

Annie Asai

What Ecommerce Merchants Need to Know About Shipping Insurance

Imagine you shipped a high-ticket product to a customer. You and your team took great care to pack and send the product… only to find out that it was damaged during transit.

Nightmare, right?

This is one of the reasons shipping insurance is so important. This type of insurance is your shield against scenarios like the above.

When you have the right coverage for your shipments and know how to file claims properly, you unlock a safety net that can absorb the costs that result from damaged, lost, or stolen products. That’s why it helps to factor shipping insurance into your order fulfillment costs.

In this article, we dive into ins and outs of ecommerce shipping insurance, how to get the right coverage, and the steps involved in filing a claim.

What is shipping insurance?

Shipping insurance is coverage that protects shippers against the costs of lost, stolen, or damaged goods while in transit. Shipping insurance is offered by carriers, though there are also third-party providers that offer the service.

The insurance cost is usually a percentage of the declared value of the item, and is often paid by the sender. (Note: some brands choose to pass this cost on to the buyer, but this is less common.)

Needless to say, shipping insurance serves as a good risk management tool for ecommerce businesses, helping to safeguard against the financial losses that can come with shipping mishaps.

How does shipping insurance work?

Here’s a quick overview of how shipping insurance works in ecommerce.

Purchase shipping insurance. The process of obtaining and using shipping insurance starts when you purchase it. This can be done through the shipping carrier or a third-party insurance company. The cost of the insurance is usually a small percentage of the declared value of the items being shipped.

Obtaining coverage. The insurance provider then covers the cost of goods being shipped in the event that the items are lost, stolen, or damaged in transit. Shipping insurance typically covers the declared value of the items, and not the shipping costs.

Filing a claim. If a product does get lost, stolen, or damaged, the shipper can file a claim with the insurance provider. At this stage, you'll provide your policy information, along with documentation such as the product invoice, proof of damage, etc.

Investigation and reimbursement. Once you've filed a claim, your insurance provider will review and investigate it. If everything is in order, the shipping insurance provider will reimburse you for the declared value of the lost or damaged goods.

Why ecommerce merchants need shipping insurance

As an online merchant, shipping is an essential part of your day-to-day; but the outcome of the shipping process is largely out of your control. Carriers do their best to deliver items safely, but there's always the risk of loss. Shipping insurance mitigates this risk.

Let’s take a closer look at the benefits of ecommerce shipping insurance.

Financial protection. Without insurance, if a package is lost, damaged, or stolen, the merchant has to bear the cost. Shipping insurance ensures that you are compensated for such losses, so your profits don’t take a hit.

Peace of mind for you and your customers. Knowing that any losses will be covered gives you peace of mind, so you can operate stress-free. At the same time, shoppers feel more secure and satisfied knowing their purchases are insured during transit. In some cases, knowing that shipments are insured can give customers more confidence to make a purchase.

Competitive advantage. Offering insured shipping can provide a competitive advantage. Customers may be more likely to choose your ecommerce store over others if they know their order is protected against loss or damage.

Different types of shipping insurance

There are two main types of shipping insurance that ecommerce merchants can get.

Carrier-provided insurance. This is the basic insurance offered by carriers such as UPS, FedEx, DHL, and USPS. It covers loss or damage of packages up to a certain value (often around $100). The coverage is limited and may not fully cover high-value items.

Third-party insurance. There are many companies that offer third-party shipping insurance. These companies can provide more comprehensive coverage options than the carriers. For instance, they may cover high-value items, international shipments, or certain items that carriers won't insure.

This-party insurance may also be the best option if you’re using a shipping or order management system that offers insurance as part of their services.

For example, ShipStation offers ParcelGuard, a shipment insurance option for its users. If you're a ShipStation user, you can enable ParcelGuard through your account. From there, choose "ParcelGuard'' from the insurance drop-down menu when setting up your shipments.

How much does shipping insurance cost?

The cost of shipping insurance varies depending on the insurance provider, the value of the goods you’re shipping, and in some cases the shipping method.

As of the time of writing this, here's how much major carriers are charging for shipping insurance.

USPS shipping insurance costs

Priority Mail Express & Priority Mail. Per the USPS’ website, these mail types "include up to $100 of insurance in the price of service.” You can purchase up to a max coverage of $5,000.

For non Priority Mail types, USPS offers the following coverage and fees.

UPS shipping insurance costs

UPS insures the value of goods up to $100 at no additional charge. Every additional $100 above that cost $1.05.

It’s also worth noting that UPS has different insurance services (with varying prices) depending on your needs. UPS' InsureShield® Shipping Insurance program offers customized coverage and single shipment coverage, both of which require shippers to get a quote.

FedEx shipping insurance costs

According to the FedEx website, "The first $100 of value in your shipment is included in your shipping rate at no extra charge as part of our standard $100 limit of liability. Your declared value fees reflect any amount that exceeds that $100."

You can get additional coverage for up to $300 for $3, and every additional $100 value on top of that amount costs $1.

How to get shipping insurance

Between determining your needs, getting a quote, and filling out some forms—getting shipping insurance is actually a simple process. We’ve outlined the general steps below, but as always, consult with your carrier or third-party insurance provider to learn about the specific steps involved.

Determine the coverage you need. Evaluate what you're shipping, its value, and the potential risks it may face in transit. Are you shipping high-value items? Are your items fragile and more susceptible to damage?

The answers to these questions will help you determine the level and type of coverage you need.

Choose a provider. The default move is to go with your shipping carrier. Alternatively, you can opt for a third-party insurance provider. These companies often offer more comprehensive coverage options and can be cheaper than carrier-provided insurance, particularly for high-value items.

Review coverage and costs. Carefully review what each policy covers. Does it cover loss, damage, and theft? Are there any exclusions you need to be aware of? Make sure you understand the policy fully before committing.

Purchase insurance. This is done at the time of shipping. If you're using a shipping carrier, you can usually add insurance when you're creating the shipping label. If you're using a third-party provider, you'll need to follow their process, which usually involves providing information about the package and its value.

And that’s it! Once these steps are complete, you can rest easy knowing that your shipments are covered. Just make sure to keep insurance and shipment documentation, in case you need to file a claim.

How to file a shipping insurance claim

In the unfortunate event that a shipment gets lost or damaged, you’ll need to file a claim. Here are the steps involved in the process.

Contact the insurance provider ASAP. Notify the insurance provider as soon as you become aware of the issue. You need to do this as soon as possible, as there’s almost always a deadline (usually 15-60 days) for when you can file a claim

Submit a claim form. This may be completed online, though some providers and regional carriers use channels like email.

Either way, the form will ask for details about the package, the insurance, and the issue (damage, loss, etc.). Be sure to fill out all sections accurately and submit all necessary documentation.

Follow up. After submitting your claim, follow up regularly with the insurance provider to check the status of your claim. They may need additional information from you, or there may be additional steps you need to take.

How to streamline shipping insurance claims

Filing shipping insurance claims seems simple enough, but the reality is the whole process can be a pain. In fact, some of the shippers that we’ve spoken with don’t even bother filing insurance claims because of the time it takes to do them.

That’s why at Tusk Logistics, we offer a shipper-friendly approach to insurance. We proactively monitor shipments and immediately contact the carriers if something is amiss.

For instance, if a package hasn’t moved in a while, we will get in touch with the carrier to see what’s the issue. If the package is deemed lost by the carrier, we’ll get started on the process immediately and file a claim on behalf of the shipper.

Why shipping insurance claims get denied

It doesn’t happen often, but insurance providers can choose to deny shipping insurance claims. Here are some of the common reasons.

The package gets delivered… eventually. In some instances, a package gets delivered after the claim has been filed.

Let's say a package that's supposed to arrive within 2 days hasn't shown up after a week. You might file a claim thinking the package is lost, only for it to arrive a few days later. In such cases, the shipping insurance company might deny the claim, because ultimately, the item wasn't lost, it was just delayed. It's crucial to note that shipping insurance covers loss and damage, not delays.

Inadequate packaging. If the insurer determines that the goods were not adequately or appropriately packed for shipping, they may deny a claim for damage.

So, take extra care with packaging your shipments; be sure to follow all packaging guidelines recommended by the shipping company and the insurer.

Prohibited items. Most shipping insurers have a list of items that they do not cover. If the item you shipped is on this list, your claim will likely be denied. This list might include certain fragile items, precious metals, live animals, and other specific categories of goods.

Bringing it all together

From financial protection to customer satisfaction, shipping insurance stands as a vital component in your ecommerce operations. The cost is a small investment for the peace of mind and financial security it brings.

As with any insurance, it's all about preparation and understanding—know your coverage, know how to file a claim, and know that you're safeguarding your business and your customers.

Ultimately, shipping insurance isn't just about shipping a package; it's about delivering a promise.

At Tusk, we’re committed to help you fulfill those promises. In addition to helping you save on shipping costs through regional parcel carriers, we also facilitate the insurance claims process by proactively monitoring your shipments and taking swift action when a problem arises.

This includes handling claims from start to finish on your behalf, so you can focus more on what you do best—growing your ecommerce business.

Get in touch to learn more.

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