Freight Insurance? Cargo Insurance? Same Thing, Aren’t They?


If you believe that freight insurance and cargo insurance are the same thing, you are by no means the first person to have fallen into that trap.

When you are shipping your goods overseas, whether by sea or by air, it is critical to understand that there is a difference between freight insurance and cargo insurance. You should know that they are not automatically covered for loss or damage, and in order for everything to be covered fully, there needs to be both freight insurance and cargo insurance in place.

Whether you are a seller of goods or a buyer, freight insurance alone will not cover the full value by any means. Freight insurance only covers the freight forwarder. In order to cover your goods for their full value, you need to buy cargo insurance. At The Insurance Broker, we can provide you with the right cargo insurance from one of the commercial cargo insurance companies.

Freight insurance simply covers the freight forwarder or logistics provider against claims as a result of their negligence or mistakes. Any damage to your goods, or total loss, must be a direct result of negligence or mistakes, and does not cover, for example, the ship sinking because it struck an iceberg. Freight insurance is calculated as a percentage of the freight forwarders charges. It is payable by the freight forwarder, but if you haven’t already guessed, this is passed on to you as a part of the freight forwarder’s charges. So, you finish up paying for freight insurance anyway.

Furthermore, all freight insurance is worked out based on the weight of the goods, so if you were shipping a pound of diamonds or a pound of sausages the amount paid out would be the same. Not only that, but the amounts paid out are governed by international conventions that vary according to the method of transport. So, the amounts paid out vary depending upon whether the goods are travelling by road, sea, or air freight.

In short, you cannot rely on freight insurance to cover the cost of any losses, and even in the event of a successful claim, the amount that you recover would be nowhere near the value of the goods themselves. Therefore, if you want to ensure that you are covered for the full value of any loss, taking out cargo insurance with one of the commercial cargo insurance companies is vital. At The Insurance Broker, we can help you to find the right cover for your needs.

You need to understand how the risk relates to both buyer and seller of the goods, and this comes under the heading of incoterms® which is an abbreviation for International Commerce Terms of 2020. The most common incoterms covering international sales agreements are FOB, EXW, and CIF.

FOB – Free On Board – Seller clears the goods for export and delivers them when they are on board the vessel at the named port of shipment. Buyer assumes all risks and costs for goods from this moment forward.

EXW – With Ex Works, the buyer bears all risk and costs starting when the goods are made available to the buyer at the seller’s location or other named place until the products are delivered to its location

CIF – Carriage, Insurance, Freight – The seller is required to purchase the minimum level of insurance under Clause C of the Institute Cargo Clauses.

So, as you can see, freight insurance and cargo insurance are very different, but we can help you find the right insurance at the best price to cover your needs.