Is Shipping Insurance Worth It? A Cost-Benefit Analysis

To add shipping insurance or not to add shipping insurance? That is the question e-commerce businesses have to ask themselves almost every time they ship out an order.

While it may seem like another added expense, there are a few eye-opening stats that every business owner should consider:

• One out of 10 items shipped arrived damaged¹
• 64% of Americans have been a victim of package theft in the past year²‍
• 70% of consumers say they are not likely to return to an online business if they had a poor delivery experience³

With the shipping process being so vital to customer retention, and damaged/lost packages being so prevalent in the world of e-commerce today, the best safeguard for your shipments is often through shipping insurance.

While you’re trying to decide whether shipping insurance is really worth it, let us help answer some of your questions, such as what it is, what it does, how much it costs, what your options are, and a look at the cost-benefit analysis for your particular business.‍

What Is Shipping Insurance?‍

Shipping insurance is an added service to your shipment that protects it against loss, damage, or theft during transportation or delivery. By adding shipping insurance to your package, you can be reimbursed the declared value of the products within the package in the event the items inside the package arrives at the customer's doorstep damaged, delivered but stolen, or never delivered to the customer at all.

Shipping insurance works similar to getting insurance of other types. You’ll pay a small fee initially but will be able to have peace of mind in the event that anything goes wrong with your product.

What to Look for When Purchasing Shipping Insurance

There are many ways to obtain shipping insurance which include the shipping carriers themselves as well as a bevy of third-party insurance providers. When looking at your options it can be overwhelming. Still, there are three main components you'll need to factor in to make your decision.

1. Coverage: Certain insurance providers may restrict what items are covered. For example, some providers may not cover items such as TVs, computers, perishable items, antiques, art, etc. They may also not cover you for incidents such as porch piracy or certain international shipments. Be sure to read the fine print before paying.
2. Cost: Not every shipping insurance provider charges the same amount. Each carrier has its own way of assessing this added fee and third-party providers may also differentiate their prices for domestic and international shipments.
3. Claims Process: Filing a claim and receiving reimbursement can take an uncomfortably long time when using the wrong insurance provider. You’ll want to make sure you can get your money back as soon as possible so that you can refund your customer and keep your cash flow steady at the same time.

We’ll try to walk you through some of these factors when deciding if shipping insurance is worth it for your business.

How Much Does Shipping Insurance Cost?‍

The cost of shipping insurance will depend on either the carrier you’re using to send your package, the software you use to generate a label, or the third-party insurance company you’re using to insure your package.

There is also the option to pass this fee onto the customer so you don’t pay anything at all. However, that cost is a less positive experience for your potential customer and can deter them from purchasing on your site.

Cost of USPS Shipping Insurance

‍If you’re sending your packages with the US Postal Service, the price for USPS insurance will be affected by the declared value of the shipment. Fees start at $2.70 and increase as the declared value of your package goes up. According to the USPS, insurance compensation for damaged, lost, or missing contents is limited to $50,000.

It's important to note that for packages shipped with USPS Priority Mail, Priority Mail Express, and Ground Advantage will be insured up to $100 automatically. That automatic coverage bumps up to $200 when using USPS Priority Mail International and USPS Priority Mail International Express to ship your products.

Cost of UPS Shipping Insurance

‍The maximum declared value will depend on your shipping method. If you’re shipping from a UPS Store the maximum is $50,000, but if you’re shipping from UPS Drop Box the limit is $500. If you're shipping from a third-party retailer partnered with UPS that limit is $1,000. All UPS shipments automatically come with $100 worth of liability for loss or damage.

However, it's important to keep in mind that UPS is not liable for loss or damage for a number of reasons including insects/vermin, extreme temperature, dampness of weather, improper packaging, perishable commodities, natural disasters, disruption of ground/air networks and many other instances.

More information on declared value with UPS can be found here.

Cost of FedEx Shipping Insurance

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‍The $100,000 maximum declared value limit for FedEx shipping insurance is available to those who sign up for the high-value jewelry shipping program and only applicable to domestic shipments. International shipments have a limit of $25,000.

Similar to the other carriers, FedEx comes with a $100 limit of liability standard for all their services.

Important note: FedEx explicitly states on their website that Declared Value is not the same as Shipping Insurance and that declaring value does not guarantee you'll receive reimbursement for a lost/damaged Shipment.

Cost of Third-Party Shipping Insurance

Using a third-party shipping insurance can be a great way to lessen the cost of protecting your products during the delivery process. As an example, we’ll look at using XCover via Shippo. Let’s say you’re shipping an electronic device worth $150 within the U.S., and you’re looking to insure your product before shipping it.

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‍You can see that by choosing XCover shipping insurance via Shippo, you can save up to 68.75% on your shipping insurance cost.

When Is Shipping Insurance Worth It?

Determining whether or not shipping insurance is worth it will largely depend on the items you’re selling and the distance they are traveling. Let’s look at two examples:

For the first example, let’s say you sell low-cost t-shirts on your site with the maximum retail price of a shirt being $25. If you’re shipping with USPS, UPS, or FedEx, you’ll already be covered for the cost of shipping a t-shirt because it falls under the $100 declared value. In this instance, it may not make sense to purchase insurance.

However, the time in which you receive a reimbursement will vary. With a XCover through Shippo, most claims are processed and reimbursed within just three business days so you'll need to factor time when it comes to your business.

Another example: if you’re shipping bigger ticket items like electronics, furniture, or jewelry with a minimum price of $100 or more, adding insurance is an excellent tactical choice. For oversized items like bedding and furniture alone, 21% arrive at the customer damaged.

Let’s say you sell 10 products at $150 each and add shipping insurance to every shipment – if you’re using XCover via Shippo, your total cost of insurance for those 10 packages would total up to just $18.80. If you went through without insuring your items and something unfortunate happened during the shipping process, your business would be at a loss of $150. Given the fact that nearly one in 10 shipments are lost, stolen, or damaged, the cost of insurance in this instance would outweigh the risk of trying to cover the total price of one item should anything happen to it.

Another thing to consider is the distance at which packages travel. Oftentimes the further the package has to travel, the increased likelihood the package switches hands, and the higher chance that it could get lost or damaged on its way to the customer. This is the case for many domestic and international shipments.

If you’re shipping to customers solely within your region, this may not be as much of an influence for adding insurance, but for e-commerce businesses who sell across the country or worldwide, it is highly worthwhile to consider shipping insurance.

Shipping with A Third-Party Insurer

Shippo partners with XCover to offer shipping insurance at just 1.25% of the package's value for domestic shipments and just 1.50% for international shipments with no minimum fees. This means even low-value items can be protected for just a tiny fee. There is a 25% deductible only for a handful of items which include: Jewelry/watches, artwork/antiques, and glassware/ceramics.

XCover is a shipping insurance company offering coverage for shipments sent via the major shipping carriers worldwide.

One of the main differences between using a company like them versus relying solely on the major carriers is that XCover is often able to process claims faster and smoother, as well as offer more coverage.

In fact, 95% of claims through XCover are resolved in as little as 3 days or less. This means that your business is able to process new shipments or issue refunds to customers as soon as possible, without having to wait for payment on the original shipment. On top of that, you're covered not only for the item's value but also the original shipping label cost, return shipping cost, and re-shipping cost. You're also able to get global coverage, protection against porch piracy, and the ability to use branded packaging.

Benefits of Insuring Your Packages Through Shippo

By adding shipping insurance through Shippo, your orders are guaranteed:

Extensive Coverage

Packages are protected against damage, loss, and even theft. Global coverage is also included with packages being shipped to and from almost anywhere in the world and by any carrier. Coverage doesn't stop at the item value but also extends to the initial label fee, the return shipping costs, and even the costs incurred for re-shipping. And unlike other insurance providers, XCover through Shippo allows you to use your own branded packaging so you can spread brand awareness worry free.

Easy Claims Process

With a paperless claims process, take your time to capture all your documentation for a smooth filing experience completely online. You can even track the status of your claims through an online portal.

Fast Reimbursements

Get your money back quickly through electronic transfer. Most claims are processed and reimbursed in less than 3 days, allowing you to keep your cash flow steady.

Affordable Premiums

Keep insurance affordable and costs down for your business and your customers. You’ll only pay 1.25% of the insured shipment value for domestic orders and 1.50% for international orders.

How To Insure Your Packages with Shippo

Whether your orders are valued at $15 or $1500, keep your customers feeling secure and satisfied by adding shipping insurance. Protecting your packages through this simple step will guarantee you get your money back in a quicker, hassle-free fashion than the complicated steps generally required by major carriers.

Don’t just stop at the monetary protection – make sure you’re protecting your products physically, too! Choosing the right infill to put inside your packages can help in this regard.

Additionally, for any orders that have the same items and value, you can easily add insurance to multiple orders, saving you time and a few extra clicks. You can also select to automatically apply insurance to all packages with one single click as well.

Though shipping insurance offers coverage for most items and products, please keep in mind the few exclusions, such as currency, neon items, hazardous material, monitors, screens, television, mobile telephones, perishable cargo or similar property, automobiles, motorcycles, live animals, flowers, plants, cigarettes/cigars, tobacco, plated glass, stained glass, and float glass. See XCover Terms of Service for the full list.