When to Insure Your Ecommerce Shipments

As a online seller, you face a dilemma with every sold item you ship: To insure, or not to insure? That is the question…so here are some words of wisdom to guide you in figuring out the right answer.

You’re Playing Package Roulette

Insurance is essentially the corporate version of gambling. You’re betting that your shipment will be damaged or lost in transit, while the insurance company bets that it won’t. Just as in Vegas, the odds favor the house, but you come out the winner when insurance covers your loss.

Here’s the deal: Of the 3 billion packages shipped each year via USPS, FedEx, and UPS, as many as 90 million may end up damaged or lost. Chances are, some of your packages are going to be among them.

Evening the Odds

There are basically 2 considerations when deciding whether or not to insure your shipment: 

  1. The nature of the item
  2. Its destination

These factors let you assess the likelihood of the item being damaged, lost, or stolen. Some items — including cellphones, computer monitors, LCDs, and neon lighting — are so breakable, and so rarely packed appropriately, that the major carriers won’t cover them at all and third-party insurers will do so only under certain conditions, such as requiring signature confirmation.

So fragility, i.e. susceptibility to damage, is the first reason to choose insurance. The second reason is value. How much is the item worth? ShipSaver’s Auto-Insure can be set to automatically insure every item that sells for a certain dollar amount or more (you choose the amount). 

Don’t insure items for more than their current retail value, or any claim is likely to be denied. The other criterion for an item’s worth is what it would cost to replace it. For ecommerce items, however, it’s usually the sale price that determines an item’s value. 

Items more likely to be stolen are usually those that can easily be resold or pawned; those with higher-end brand names; and those in small, easily grabbed and concealed packages.

Next, think about where your item is going. For domestic packages, shipping to New York City may be riskier than shipping to suburban New Jersey. There’s always more risk when shipping something overseas, but it’s a lot higher for, say, Italy than for the UK or Australia. 

You’ll have to go to a third-party provider (such as ShipSaver) for coverage on anything sent by USPS First Class International, because USPS won’t insure that mail class.

By the Numbers

As with any business decision, you’ve also got to figure out if insurance is cost effective. There’s a handy formula you can use to help you determine whether or not you should insure your items. It looks like this:

In short, if the average cost to insure an item is less than what you spend replacing damaged, lost, or stolen items, then you should use insurance to mitigate your risk.

Bear in mind that it’s much cheaper to buy from third-party insurers such as ShipSaver than through USPS, FedEx, or UPS. And with ShipSaver, your insurance can even cover the cost of your shipping and handling.

In addition, ShipSaver and other third-party providers offer cargo insurance, not declared value coverage. The crucial difference between the two is that with declared value coverage, you have to prove that the damage, loss, or theft was due to negligence on the carrier’s part. Good luck with that! 

With cargo insurance, assuming your item was packed reasonably well, you’re covered no matter who is at fault. You can ship with total peace of mind, and that’s priceless.

Top 3 Tips for Insuring Ecommerce Shipments

As an ecommerce seller, it’s up to you to deliver the goods. That means getting sold items to their respective buyers promptly and in good order.

On the other hand, unless you’re hand-carrying each package to its destination (which we can safely assume you aren’t), you’re actually entrusting your items to a shipping carrier that you hope will do the job of delivering them in a timely manner and in the same condition they were in when you packed them. 

Unfortunately, that doesn’t always happen, which is where insurance comes into play. Here are 3 things you need to do in order to insure your ecommerce shipments both thoroughly and cost effectively.

1. Assess the risk.

First, do a quick risk assessment. Judging whether insurance is really needed is a whole ‘nother topic in its own right, but basically you should consider what the item is and where it’s going. If it’s fragile and/or expensive and/or highly susceptible to theft and/or headed for a potentially sketchy destination, then yes, you should insure it.

2. Understand the coverage.

Getting insurance through your carrier may seem easiest, but it can cost you in more ways than just the price of their coverage, even when that coverage is offered free of charge. USPS includes $100 worth per package (note: not per item in that package!) in the price of their Priority Mail postage, while UPS and FedEx give you that amount of coverage free with every package.

You can also purchase additional coverage, if desired, as long as you declare the value of each shipped item.

However, the major carriers’ coverage is for declared value only. The amount of their coverage equals their maximum liability should that package be lost or damaged in transit. Furthermore, with this type of coverage, the shipper must prove that the damage or loss is directly due to the carrier’s negligence. This can be hard to prove — and result in denial of a claim.

For true insurance, it pays to look to a third-party insurer, who will usually provide fuller coverage at a lower cost. In addition, they provide cargo insurance, which pays out regardless of carrier negligence.

In addition, be sure to check the insurer’s list of exclusions (both items and destinations) as well as their requirements for packaging and filing a claim.

3. Consider the cost.

This is basically a no-brainer. Let’s use ShipSaver’s rates as an example. For domestic USPS packages, it will cost you $1 for each $100 worth of coverage; by contrast, insuring packages through eBay costs $1.65 for up to $100, while at the post office you’ll be charged $2.10 for $0.01-$50 and $2.70 for $50.01-$100.

Additionally, only third-party providers like ShipSaver will insure packages shipped via USPS First Class International.

For packages shipped domestically via FedEx or UPS, ShipSaver’s price is $0.75 per $100 of coverage from $100.01 upward, whereas once you exceed their first $100 of free insurance, you’ll pay $2.70 for $100.01-$400 in coverage at FedEx or UPS. 

Check out ShipSaver’s latest rate comparisons for insuring domestic and international packages. Then select the shipment insurance that’s right for you and your ecommerce business.

How to Get Your Shipment Insurance Claim Approved

There’s basically only one way to ensure that your insurance claim for a damaged or lost package is approved: Read through the insurer’s terms of service, including their instructions for filing a claim; then follow them to the letter. 

And be sure to dot your I’s and cross your T’s, because the most common reason for denying a claim is that it doesn’t meet the company’s standards for approval. Insurance companies deal with claims all the time, and they have a process in place. That means that you’ll have to jump through some hoops enroute to getting your claim approved. Not doing so is a sure route to having that claim denied.

The First Line of Defense

The road to a successful insurance claim starts before an item ever leaves your hands. No matter what kind of coverage you buy, chances are the insurer requires items to be packaged appropriately for safe transit. So don’t skimp on bubblewrap, packing peanuts, or sturdy boxes! If you don’t pack an item reasonably well, you’ll void your coverage.

Furthermore, if photos aren’t already part of a listing that you can simply print out, consider documenting your item’s “Before” condition in case there turns out to be an “After”. You might also want to take photos of your packing job as well as the resulting package. 

In addition, hang onto any documentation pertaining to an item’s value and other details about the item. Serial numbers in particular are crucial when filing a claim for certain categories of goods. 

Declared Value vs Cargo Insurance

One key factor in filing a claim is what type of coverage you have. Did you get it through the carrier? USPS Priority Mail packages and all FedEx and UPS packages automatically come with $100 worth of coverage.

However, the carriers offer what’s known as declared value coverage. The amount of their coverage represents their maximum liability in the event a package is damaged or lost. So if your item is worth more than $100, you must declare its value and purchase additional coverage.

Furthermore, with declared value coverage, you have to prove that the damage or loss was directly due to the carrier’s negligence, or your claim may be denied. 

By contrast, third-party insurance providers offer cargo insurance, which pays out without regard to the carrier’s negligence. It’s also usually cheaper and more thorough than the coverage sold by USPS, FedEx, or UPS.

Submitting Your Claim

Most insurers require 4 things:

  1. A tracking number
  2. Evidence of insurance
  3. Evidence of value
  4. Proof of damage or loss

If you’re filing with USPS, be sure to have the recipient save the original packaging along with the damaged goods, because USPS may ask for them to be presented for inspection. By the same token, some third-party insurers (including ShipSaver) require damaged goods and their packaging to be retained until the claim is completed.

File your claim promptly! USPS allows 60 days for most mail classes. So does FedEx, while UPS allows up to 9 months. ShipSaver allows 120 days for domestic USPS packages and 60 days for packages shipped via FedEx or UPS. The sooner you file your claim, the sooner it can be resolved. 

Here’s where to find out exactly what you need to file a claim with USPSFedExUPS, or ShipSaver.