Freight Insurance 101

Freight Insurance 101: What Every Shipper Needs to Know

Freight insurance, like any other kind of insurance, is a waste of money – until it’s not 😅.

Having the right freight insurance whenever you ship goods means you’re covered if things go wrong.

And when you ship goods as part of your business, a small amount of damage can be disastrous. But the thing is, most shippers assume a worst-case scenario, like a collision will be what causes their goods to become damaged. When in reality, most damages arise from things much more mundane and routine. In fact, it’s the improper handling and poor packaging that are the 2 most common reasons for freight damage.

In this guide, we will explain what freight insurance is, the different types available and some tips for shippers that will help keep your business protected from unexpected losses.

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1. What is Freight Insurance?

Generally speaking, freight insurance (also known as cargo insurance) is a protection that covers the shipper from the loss, damage or theft of their goods. This means that in the unfortunate case that something does go wrong, you can file a claim for your goods to reimburse you for the loss. Every policy is different, and exactly what’s covered and to what extent will vary. The higher the value your goods are, the more attention you should pay to having the correct insurance.

Otherwise, should the worst happen and your goods are written off, you may find yourself significantly out of pocket 💰.

2. Types of Freight Insurance

When it comes to shipping goods, one size does not fit all. The type of freight insurance you choose can make a significant difference in protecting your shipments against various risks. Understanding the different types of freight insurance available is crucial for ensuring that your cargo is adequately covered. Here are the main types of freight insurance and what each one offers 📃:

All-Risk Insurance: Provides comprehensive coverage for a wide range of potential risks and damages, except for those explicitly excluded in the policy.

Named Perils Insurance: Covers only the specific risks and perils explicitly listed in the policy, such as fire, theft, or collision.

Contingent Cargo Insurance: Acts as a secondary coverage that comes into play if the primary insurance held by the carrier is insufficient or does not cover the loss.

Shipper’s Interest Insurance: Purchased by the shipper to cover the full value of the goods being shipped, providing broader protection than the carrier’s liability.

Motor Truck Cargo Insurance: Specifically designed for carriers, this insurance covers the transporter’s liability for the cargo being transported in case of damage or loss.

Warehouse-to-Warehouse Coverage: Covers goods from the moment they leave the origin warehouse until they arrive at the destination warehouse, providing continuous protection during transit.

Limited Risk Cargo Insurance: Offers coverage for specific limited risks, usually at a lower premium, but with more restricted protection compared to all-risk insurance.

Freight Broker Liability Insurance: Provides coverage for legal liabilities that a freight broker may face. This includes claims related to negligence, errors, omissions, and other liabilities that may arise from arranging transportation services, protecting the broker from significant financial losses due to legal claims and lawsuits.

3. What Does Freight Insurance Cover?

After reading the previous section, you’ll understand that different types of freight insurance, cover different things. The below is a list of what is and is not typically covered by insurance 📃.

Typically Covered:

Physical Damage: Coverage for physical damage to the goods caused by accidents, collisions, or mishandling during transit.

Theft: Protection against theft or pilferage of the goods while in transit or storage.

Loss: Coverage for the complete loss of goods due to events like accidents, theft, or natural disasters.

Fire and Explosion: Protection against damage caused by fire or explosion during transit.

Natural Disasters: Coverage for damage caused by natural disasters such as earthquakes, floods, hurricanes, or tornadoes.

Water Damage: Protection against damage caused by water, including leaks, spills, or immersion.

Third-Party Liability: Coverage for legal liabilities arising from damage or injury caused to third parties during transit.

Typically Not Covered:

Inherent Vice: Damage caused by the inherent nature of the goods, such as spoilage of perishable items or deterioration of fragile items.

Improper Packaging: Damage resulting from inadequate or improper packaging that fails to protect the goods adequately.

Delay or Loss of Market: Losses incurred due to delay in delivery or loss of market value of the goods.

Consequential Losses: Indirect or consequential losses, such as loss of profits, business interruption, or reputation damage.

War and Terrorism: Damage or loss caused by war, terrorism, or acts of political unrest, which are typically excluded from standard insurance policies.

Nuclear Hazard: Damage or loss resulting from nuclear reactions, radiation, or contamination.

Intentional Acts: Damage caused intentionally by the shipper or any other involved party.

It’s essential for shippers to carefully review their insurance policies and understand the specific coverage and exclusions to ensure adequate protection for their shipments. Additionally, supplementary or specialized coverage may be available to address specific risks not covered by standard policies.

4. Filing a claim

No one likes dealing with insurance companies. There are a million better ways you can spend your time. Time that doesn’t involve being on hold and transferred between 3 different people.

But unfortunately sometimes, needs must.

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The process will vary depending on the type of insurance you have and the company providing it. But in general your claims process will look something like this:

  1. Document the Damage: Take photos, videos, and notes.
  2. Notify the Carrier: Report the damage or loss immediately.
  3. File a Claim: Submit all required documentation to your insurance provider.
  4. Co-operate with the Investigation: Provide additional information as needed.

Some transportation companies have great systems in place to handle these unfortunate circumstances on behalf of shippers (Like us 😉).

When you ship with PEI, you benefit from a dedicated team who’ll file and chase any damage claims on your behalf.

5. Additional tips for shippers

1. Make Sure You Pack Well: freight damage often comes from minor bumps and knocks sustained during transit. Well packaged cargo with the necessary cushioning and wrapping will go along way in protecting it. You can learn more about the different ways of keeping your freight safe here.

2. Take Before & After Pics: When dealing with insurance companies, they’ll definitely need evidence of the damages. However, to protect yourself further it’s always a good idea to get a photo of your freight before it embarks on its journey. This way, you’ll be able to prove the damage was sustained after it left your hands.

3. Keep Written Communications: This is important if there’s information you want your carrier to know about when handling your freight. You should make these instructions clear and also send them in an email. This way, if any future disputes rise regarding information you neglected to provide, you have the evidence to share.

4. If It’s Damaged, Sign for It as Damaged: This is crucial! If your shipment arrives visibly damaged, make sure to sign the delivery receipt accordingly. Shipments not noted as damaged at the time of delivery become extremely difficult to prove were damaged in transit, potentially voiding your insurance claim.

5. Preserve Everything After Damage: After a damage incident, resist the urge to clean up or make changes. Do not throw away anything (including packaging), do not move the damaged shipment, do not reship it, and do not sell or scrap any pieces. Altering the scene or disposing of evidence could void your insurance claim.

6. Time is of the essence when it comes to filing a claim: If your shipment is signed as damaged (visible damage), you have a limited amount of time to notify the company, shippers have 3 days to notify PEI of their intent to file a claim. For shipments not signed as damaged (concealed damage), shippers have 10 days.


Freight insurance isn’t just about protecting your cargo – it’s about safeguarding your business’s bottom line and building trust with your customers. Unexpected events are an inevitable part of shipping, but the financial fallout doesn’t have to be. By making informed decisions about your insurance coverage, you can ensure that your business is prepared to weather any storm, literally or figuratively ⛈.


Need help with any of your specialized shipments?

At PEI we’re experts in dealing with specialized freight and can handle yours with any custom requirements.

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