Cargo insurance cost is a small cost, may not be necessary if the cargo is transported without any problems. However, it is recommended to have insurance since there is any possibility that unpredictable things can happen in international transportation.
I will explain the basics of cargo insurance in this post. I will cover what is cargo insurance, cargo insurance terms and insurance premium.
What is Cargo Insurance? Cargo insurance coverage.
Cargo insurance is an insurance for import and export cargo to cover various unforeseen accidents and risks that may occur during transportation.
Since international transportation involves longer distances and more transshipment than domestic transportation. There is higher possibilities of cargo damage and problems occurred during transportation.
The insurance covers water damage to containers on the ship as well as human error when reloading containers onto trucks.
How to apply to insurance company? Cargo insurance requirements.
When you get an insurance policy, you need to fill out an application form with the insurance company.
Here are some of the basic cargo insurance terms that you need to know in order to fill out an insurance application.
This is the maximum amount that can be paid out as insurance in case of an accident. The insured amount is usually 110% of the CIF price listed on the invoice.
This is the amount you pay to the insurance company. The premium is calculated by multiplying the insurance amount by the premium rate (about 0.3% to 0.5%).
The premium rate varies depending on the route, goods, etc. The minimum amount per case is about USD 30.
In some areas under the war or strike, additional premiums may be charged, which called War & S.R.C.C. Rate.
The Scope of Insurance. Cargo Insurance Coverage.
There are two types of insurance.
- Total loss – the damage is to all of the cargo and it cannot be used anymore
- partial loss – the damage is to one part of the cargo.
There are different types of insurance policies depending on how much risk you want to cover such as an all-perils policy that covers all damages (total loss or partial loss) or one that only covers total loss.
The more risks covered, the higher the premiums will be.
Other necessary terms
These are the other terms you need to remember when applying to insurance companies:
- the destination of the shipment
- the method of transportation
- invoice amount
- the name of the item
How to calculate cargo insurance cost and the premium
As an example, let’s say you are transporting machinery from Shanghai to Los Angeles
We assume that the conditions of transportation are as follows
Machine value10,000 USDFee in China
– Transportation from the factory to Shanghai port
– Customs clearance
– Other inland charges500 USDOcean freight1,000 USDTotal (CIF price)11,500 USD110% * CIF price12,650 USDInsurance Premium (0.3%)37.95 USD
In case of an accident and the machine is declared a total loss, USD 12,650 will be paid by the insurance company. And the premium is more than the minimum amount of USD 30, you will have to pay this to the insurance company.