An Overview of Shipping Insurance

Shipping insurance—just like other types of coverage—can provide you with extra peace of mind if a shipment goes missing or arrives damaged. In most cases, your shipment will arrive as planned, and in good condition. But as luck will sometimes have it, that’s not always the case.

How does shipping insurance work, and what should you know about the process? Understanding this can help you make informed decisions about protecting your shipments.

Shipping insurance protects your packages by covering losses due to damage, theft, or loss during transit, helping you maintain customer trust and financial stability.

In summary, insurance work in shipping involves reimbursing you for lost, stolen, or damaged goods, depending on the coverage and claim procedures.

The Value of Shipping Insurance

You’ve put a lot of time and effort into your products and in cultivating your customer base, so the last thing you want is to have any of your shipments not arrive as expected. It’s not only very costly but can feel defeating, for both you and your customers. Shipping costs and insurance costs can significantly impact your bottom line, so it’s important to consider both when planning your shipping strategy.

Shipping insurance is all about having a backup plan that optimizes for the unexpected. Depending on the type and amount of coverage, this insurance may help your company to cover its costs if a package gets lost in transit or is damaged to the degree that it is deemed unacceptable by the recipient.

Insurance can be purchased from most major carriers, or in some cases, from a third-party company. Deciding when to buy insurance depends on factors like the value of the package, the risk of loss or damage, and a comparison of insurance costs between carriers and third-party providers.

This insurance protects the shipper because, if coverage is adequate, then costs can be reimbursed when packages don’t arrive in the right condition. Package protection is a key benefit of shipping insurance, helping to safeguard your shipments and maintain customer satisfaction. It can also be reassuring to customers that a company values their business.

Base Coverage: Declared Value

One important aspect to point out is the subject of declared value. What some carriers will initially offer with shipments is not actually shipping insurance, but rather “declared value coverage.” Declared value lists the maximum liability that the carrier may have to pay out if a package is damaged or lost, and has built-in maximum limits and other stipulations. Carrier insurance, which is typically offered directly through shipping carriers, differs from third-party shipping insurance in terms of cost, coverage, and benefits, and is often priced higher with different coverage terms.

One stipulation right off the top, in many cases, is that the package must have been damaged while in the possession of the carrier, and the shipper will need to be able to prove that. The maximum payout limits are generally capped at $100, so it is important to consider maximum coverage and whether you need to purchase additional coverage for high-value items to ensure full protection.

For higher values, you may also be required to provide additional documentation or proof of value to secure coverage. For items worth more than that, most carriers also offer the option to purchase insurance that will reimburse you for the declared value.

Checking the Fine Print

When considering adding additional insurance coverage, there will be several aspects you’ll need to review closely. For instance, each carrier will have items they won’t cover, as well as certain destinations that won’t qualify for coverage. Plus, there can be coverage limits when shipping certain types of items. Insurance cover typically includes protection against loss, damage, and sometimes delays during transit, but it is important to understand exactly what is included in your policy.

So, any time your business is shipping items and is considering adding insurance, be sure to read the fine print about coverage. Shipping coverage defines the scope of protection for your shipments, including what types of risks and losses are included and any applicable limits.

There is always a risk that items may be lost or damaged during transit, and exclusions in the policy can mean that certain scenarios are not covered, leaving you exposed to potential losses. Will, for example, the theft of a package be covered? Does the carrier have an exclusion that won’t cover certain items being shipped? Those are just some aspects you’ll need to take into account. For instance, the USPS has a list of items it won’t cover.

These can include perishable items, products that are too fragile for safe delivery, or items not packed securely. UPS also has a similar list of items it prohibits or does not provide coverage on. You can’t, for example, get coverage from the UPS on items such as antiques, fish tanks, clocks, and china, to name a few. Parcel shipping insurance covers incidents such as damage, loss, or failed delivery attempts during transit, but the specifics can vary by carrier and policy.

When Does Getting Carrier or Third Party Shipping Insurance Coverage Make Sense?

In cases where the value is more than $100, when should a company purchase additional coverage? To make that decision, it can help to picture what might happen if a package got lost or contents were damaged. How would that affect your company? How easily could you replace the contents without a significant hit on your finances? It’s possible that just one occurrence wouldn’t be a big deal but what if it happened several times? What if the package is of especially high value? Insured package delivery is crucial for high-value shipments, as it provides a safeguard against loss or damage during transit. (Think Murphy’s Law, here.)

Be sure to keep good track of all the packages you ship, keeping organized records of how each one is covered. Which entity is providing coverage for a particular package and for what dollar amount? The shipping carrier you choose plays a key role in offering or managing insurance options, so selecting the right carrier is important for effective risk management.

When creating a shipping label, many platforms allow you to add shipping insurance at the time of label purchase, streamlining the process for high-value or high-volume shipments. When you do this—and a customer lets you know that a package hasn’t arrived or it was banged up during transit—then you can move forward to the next steps with more confidence.

Insurance Coverage and Policies

Carrier specifics and other shipping insurance options.

USPS

When shipping domestically, the U.S. Postal Service typically automatically provides $100 in coverage on Priority Mail and Priority Mail Express shipments. If your business is using one of these services and the value of products shipped fits within these parameters, then additional coverage may not be necessary. In general, you can purchase up to $5,000 in protection for what you mail, up to the value of the items shipped. USPS offers package insurance options that allow you to insure your shipments against loss or damage, providing peace of mind for valuable packages. Here is more information about USPS options

UPS

With a domestic shipment, a UPS package is automatically covered up to $100 against damage or loss. Coverage can typically be purchased up to $50,000 for a package or up to $100,000 per pallet.

FedEx

As with UPS, domestic packages come with $100 in automatically granted coverage to protect against damage or loss, with options to increase the coverage. It also offers extra services such as FedEx Declared Value Advantage for specialty items such as jewelry, precious gemstones, and other specialty items. FedEx also provides parcel shipping insurance that covers a range of incidents during transit, allowing you to select appropriate coverage levels based on your shipment's value.

DHL Express

DHL offers what they call “shipment value protection,” which offers “all risks” shipment value protection with comprehensive coverage” for single shipments, as well as with multiple ones. They note that there are no deductibles.

Third-Party Insurance

As mentioned earlier on in this post, you can obtain coverage from a carrier or from a third party, and here are reasons your business may want to consider the latter option. First, remember that to start, many carriers provide coverage, rather than actual insurance, which means that the amount of coverage purchased is the maximum refund that can be obtained, not a guaranteed dollar amount. With third-party insurance, you can typically cover your shipments for a certain dollar amount.

When comparing third-party insurance, it's important to evaluate different shipping insurance companies to find the best rates, coverage options, and claims processes for your needs. Shipping insurance cost is determined by factors such as the value of the goods, the shipping carrier, destination, and type of items being shipped.

Shipping insurance costs can vary between providers, so it's wise to compare rates and coverage to ensure you are making a cost-effective decision. The shipping insurance cover provided by third-party insurers can include protection against loss, damage, delays, mishandling, and even failure to collect payments on delivery.

One time shipping insurance is also available as a flexible option for occasional shippers who need coverage for individual shipments without ongoing commitments. A third party logistics company can help manage your shipping insurance and claims process, streamlining operations and reducing administrative burden.

For some businesses, self insurance—setting aside funds to cover potential shipping losses—can be an alternative risk management strategy to paying regular insurance premiums.

Plus, with third-party insurance, you can often get better rates, and the savings on each package shipped can really add up over time, boosting your company’s bottom line. And, because the coverage from a third party can be more extensive, you can benefit from both affordability and reliability. Then there’s the convenience factor. Third-party insurance can cover a package from pickup to delivery, without a need for your company to make a claim about carrier fault.

Here’s another benefit of third-party shipping insurance. If you use more than one carrier, you can have all of your shipping insurance information in one centralized place, which can reduce stress and save time. You’ll know what’s covered on each package, without having to investigate which carrier was used and what that particular carrier will cover.

Claims Process and Documentation

Navigating the claims process is a crucial part of making the most of your shipping insurance coverage. Whether you’re dealing with lost packages, damaged goods, or delivery delays, understanding how shipping insurance works—and what’s required to file a claim—can make all the difference in protecting your business from unexpected shipping issues.

When it comes to filing a claim, the first step is to notify your insurance provider as soon as you become aware of a problem. Each insurance carrier, whether it’s USPS, UPS, FedEx, or a third-party shipping insurance company, has specific timelines for submitting claims. For example, USPS Priority Mail Express has strict deadlines, so it’s important to act quickly to ensure your claim is eligible for review. Missing these windows can mean forfeiting your right to compensation, regardless of the insurance coverage you purchased.

Proper documentation is the backbone of a successful insurance claim. You’ll typically need to provide proof of value for the items shipped, such as invoices or receipts, along with shipping receipts, photos of any damage, and details like package weight, shipment date, and delivery confirmation.

Keeping meticulous records for each shipment—including the declared value and any additional insurance purchased—will streamline the claims process and help resolve claims efficiently. This is especially important when shipping high value items or valuable shipments, where the financial stakes are higher.

Third party shipping insurance providers often stand out for their comprehensive coverage and simplified claims processing. Unlike traditional carrier liability, which may require you to prove fault or navigate complex procedures, third party insurers like InsureShield or UPS Capital typically offer a more straightforward, customer-friendly claims process.

Many allow you to file a claim online, track its progress, and receive faster resolutions—giving you peace of mind and minimizing disruptions to your business.

For international shipments, the claims process can be more complex due to varying regulations and documentation requirements in different countries. However, many third party providers offer global shipping protection, ensuring your packages are covered from pickup to delivery, regardless of destination.

This added layer of shipping insurance coverage is especially valuable for businesses shipping high value or multiple packages overseas.

When evaluating your shipping insurance options, consider not just the insurance cost or USPS insurance cost, but also the ease of claims processing, coverage limits, and integration with your shipping systems. Conducting a cost benefit analysis can help you determine whether insuring low risk shipments makes financial sense, or if your focus should be on high value items and international shipments.

Ultimately, investing in comprehensive shipping insurance and maintaining proper documentation for every shipment ensures you’re prepared to file a claim and recover losses quickly. By choosing the right insurance provider and understanding the claims process, you can safeguard your business, maintain customer satisfaction, and enjoy true peace of mind throughout the shipping process.

Shipping Insurance Cost Made Easy

Shippo makes it easy and convenient to protect your packages against damage or loss, whether you're buying coverage through the carriers or through discounted third-party insurance via XCover. 

When you use XCover through Shippo, you can benefit in multiple ways:

Shippo streamlines the entire shipping process while allowing your business to protect its packages without headaches.

FAQ: Shipping Insurance Basics

1. What does shipping insurance cover?
Shipping insurance reimburses you if a package is lost, stolen, or damaged while in transit. Depending on the provider, it may cover additional scenarios such as mishandling, delays, or failed delivery attempts. Coverage varies by carrier or third-party policy.

2. How is declared value different from shipping insurance?
Declared value is not full insurance—it sets the maximum liability a carrier may pay if a package is lost or damaged, often capped at $100 by default. True shipping insurance (carrier or third-party) offers actual coverage for the shipment’s value and can be purchased for higher protection.

3. When should a business buy extra shipping insurance?
Additional coverage makes sense when shipping items worth more than $100, high-value or fragile products, or when the cost of replacing an item would significantly affect your margins. Insurance is especially important for high-risk, high-value, or international shipments.

4. What are the benefits of using third-party shipping insurance?
Third-party insurance often provides better rates, broader coverage, easier claims, and no requirement to prove carrier fault. It also centralizes coverage across multiple carriers and can protect packages from pickup to delivery, simplifying risk management.

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