When goods travel thousands of kilometres by sea or air, a lot can go wrong: rough weather, collisions, fire, rough handling, theft, water damage. Carriers' liability is limited by international rules and is often far below the value of the goods. Marine cargo insurance fills the gap. For a small premium, it protects the value of the shipment. Importers who skip it are betting the whole shipment on a safe voyage.

Who bears the risk?

The delivery terms agreed with the supplier determine when risk passes from the seller to the buyer. Under some terms, the buyer carries the risk from the moment the goods are loaded; under others, the seller covers it until a later point. Under certain terms, the seller must insure the goods, but only to a minimum level. Incoterms explained for importers shows where risk transfers. Do not assume the seller has insured the goods for your benefit.

What cargo insurance covers

A cargo policy covers physical loss or damage to goods in transit by sea, air or road, subject to its terms. The widest forms cover all risks of loss or damage, with listed exclusions. Narrower forms cover only named events, such as fire, sinking, collision or overturning. Policies may also cover general average, a shared loss when cargo is sacrificed to save the voyage, which can create a large claim even for undamaged goods.

Typical exclusions

Read the exclusions carefully. Policies commonly exclude losses caused by inadequate packing, inherent vice such as natural deterioration, delay, ordinary leakage or wear, and wilful misconduct by the insured. War and strikes may need extra cover. If your goods are perishable, fragile or high value, check that the policy treats them properly and that the packing meets its conditions.

How much to insure for

Insure the goods for their full value, usually the invoice value plus freight and insurance plus a margin, such as ten percent, for the importer's expected profit. Under-insuring means a smaller payout and a proportional reduction in claims. The landed cost calculator shows the value of the goods plus freight and other costs, which helps you set a sensible sum.

How premiums are set

Premiums are a small percentage of the insured value, depending on the goods, the route, the type of cover, the packing and the claims history. Fragile or high-risk goods and certain routes cost more. Ask for quotes from at least two insurers or brokers, and compare cover, excess and exclusions, not only the premium. Insurance is a cost of importing, and belongs in your costing; see working out your profit on imported goods after all costs.

Open cover or single shipment

If you import often, an open cover covers all your shipments automatically under agreed terms, and you declare each one. For occasional imports, you can buy cover shipment by shipment. Open covers save time and avoid forgetting to insure a shipment, which is the most common reason importers go uncovered.

Taxes on insurance and duty

Customs duty is usually calculated on a value that includes freight and insurance up to the point of entry, so insurance affects the dutiable value. Check how the customs value is built up in customs valuation explained, and use the import duty calculator to see the effect. Insurance premiums are a deductible business cost, supported by the policy and invoice.

How to make a claim

If you find damage or shortage, act quickly. Note the damage on the delivery documents before signing. Take photographs. Notify the carrier or terminal in writing within the time allowed, and tell your insurer promptly. Keep the damaged goods and packaging for inspection. Gather the policy, the invoice, the packing list, the bill of lading and a survey report if one is required. How to read a bill of lading and a packing list explains the key documents.

Keep the paperwork

File the policy, the certificate and the premium receipt with the shipment documents. In the import duty and landed cost workbook, record the premium as part of the cost of each shipment. If a claim arises, a tidy file speeds the settlement.

When insurance is worth it

For most commercial imports, the premium is small compared with the loss of a shipment. The question is not whether you can afford insurance, but whether you can afford to go without it. Insure every shipment, understand the exclusions and keep your packing and records in good order. It is one of the cheapest forms of protection available to an importer.

See also import documents checklist, clearing agent or clear it yourself and why imports get delayed at the port.