It is known that ocean freight, despite its popularity, is full of risks. That is why it is never enough to emphasize how important cargo insurance is. Your shipment is never entirely safe unless and insurance is your only compensation if something goes wrong. In this article, we will explain the different types of cargo insurance so you can choose which one suits best your needs.
The Importance of Cargo Insurance
Taking all the preventive measure to protect your cargo from any potential damage is not enough. Your cargo will always be subject to natural disasters, extreme weather, cargo theft, etc. Lets take for example ire that broke out on board the Maersk Honan, it was unpredictable and it cost shippers without insurance a leg and an arm. In ocean freight, you should always have insurance.
The Different Types Of Cargo Insurance
There are several types of cargo insurance. We are not going to list them all in this article. Below you will find the most common two types of cargo insurance.
- Marine cargo insurance: This insurance includes both air and sea freight. It is applicable only to international shipments. You can choose either permanent or renewable marine cargo insurance. Permanent insurance is cost-effective for frequent shippers. As for occasional and seasonable shippers, it is better to opt for renewable cargo insurance. This insurance can cover all kind of damage and risks.
- Land cargo insurance: This insurance is for cargos being shipped by land. It is applicable when your shipment is moved by any utility vehicle such as a truck. The land cargo insurance is domestic and covers damage, theft, and other risks.
Types of cargo insurance coverage
There are different types of cargo insurance and each type covers different risks from the other. Therefore, to what extent your cargo is covered, depends largely on the type of policy you have chosen. It is vital that you pay good attention to the details of all policies before you choose one. Below you will find an explanation of the most common two types of cargo insurance:
- All Risk Insurance: This type of insurance covers a wide range of risks. Your goods will be covered against physical losses and damages that may happen due to external causes. However, this insurance does not cover damage to cargo as a result of negligence, inherent vice, customs rejection, cargo abandonment, WSRCC (war, strikes, riots, and civil commotions), loss of use, and failure to pay/collect.
- Free of Particular Average: This insurance is commonly known as Named perils policy. This insurance is more limited than the all risk insurance. It covers only the losses caused by the perils mentioned in the policy such as vessel collision, vessel sinking, derailment, fire, non-delivery, bad weather, earthquake theft, etc.
The general average is a legal concept defined as: “A principle of maritime law wherein the event of an emergency if cargo is jettisoned or expenses incurred, the loss is shared proportionately by all parties with a financial interest in the voyage.”
In other words, all losses from damages caused during an unforeseen problem at sea are to be divided equally between owners of the surviving cargos on board the same container. This means that shippers of a cargo that has not suffered damages are liable to fork out financial compensation to the shippers whose cargos have been damaged or lost.
Importance of general average coverage
It is true that unforeseen problems are not quite frequent but once it happens it is extremely costly and you truly do not want to be in such a situation without proper insurance coverage. The slightest unforeseen problem with cost you hundreds of thousands of dollars. Therefore, it is highly recommended that you have general average coverage. General average coverage makes your insurance provider legally reliable for paying the compensation fees that you need to pay to the owners of damaged cargos you shared vessels with.