Cargo Insurance – Overview of Basic Principles

Why should you shell out extra amount to pay for cargo insurance? The short answer is: because with that “extra” amount, you will be remunerated in case your cargo gets lost or damaged. Nonetheless, let us define cargo insurance in more technical way. Cargo insurance generally covers the lost or damage, total or partial, of the goods that is the subject of the insurance coverage if such goods is damaged or lost while in transit and all other essential requisites are attendant. This sentence basically embodies the conditions before you can claim for your insurance proceeds. It is very important to note that not all and every kind of loss and damage on the goods entitles the owner of the cargo insurance policy to claim insurance proceeds.

General key concept of insurance

These general concepts of insurance also apply to cargo insurance:

The claimant should have insurable interest. Insurable interest is a question of law. To put it simple, you have insurable interest over a cargo if you will stand at lost when that cargo is damaged or lost.

Another general concept is the “perils insured against” must be the cause of the damage or loss. Carefully study the insurance policy that you purchased or one that is being offered to you. If it is unclear, ask the provider or underwriter what are the events or circumstances that are covered by the policy. This is vital. If the cargo insurance you purchased did not enumerate the cause of the damage, you cannot claim the proceeds of the insurance. To illustrate, if the loss was due to Typhoon Yolanda and typhoons, or “Acts of God”, or natural disasters were not in the list, you may lost your cargo without compensation for your loss.

Filing your claim is also another vital thing to consider. Some may require that you should inspect your cargo upon delivery or within twenty-four hours. Some may provide for a longer period like few days. Some may provide a distinction between a cargo delivered with noticeable impact or damage on the surface of the box or parcel. The time allotted for visible surface damage is shorter. The bottom line is, be sure to check on the allowable period within which you must notify the carrier of the fact that the cargo is damaged and the period within which you must notify your insurance provider of your claim.

When do you have ownership?

This is important because you should buy a cargo insurance that covers the segment of the supply chain when you are considered as the “owner” of the goods. This becomes very significant especially for international transactions. Remember our basic concept – if not covered, not compensated. Two terms to note:

“FOB Origin” and “FOB Destination”

The first stands for Free on Board origin where the buyer is deemed the owner of the goods once the goods are handed over to the carrier. The second means Free on board destination. In the latter, the seller retains ownership of the items being transported by the carrier until the goods reached its destination.

Contracts and Stipulation

Legal provisions serve as general rules to be followed to settle disputes. Thus, if the buyer and the seller enters into a contract or stipulation, such will be given due course. Agreements, terms, stipulations between two contracting parties will serve as the law in between them. Having said that, if the seller and the buyer agreed on who bears the liability, then that will be considered and honored.

Cargo Insurance Provider versus General Insurance Provider

Will you prefer one over the other? Well, one may have advantage over the other. While cargo insurance providers specializes on this field and so they are expected to be masters of their trade, it may also be equally attractive to avail of cargo insurance from a provider from whom you acquired some other types of insurance. You may avail of discounts for availing of multi-coverage. The decisive factor is whether your provider is knowledgeable about supply chain management and supply chain processes. Knowledge of this will give you more confidence that you are purchasing your cargo insurance from the right provider.

Mode of transportation covered

As mentioned earlier, if a particular situation is not covered by the terms written on the insurance policy, the loss of the goods will be “charged to experience” and that you cannot claim the proceeds of the insurance. To illustrate, if the insurance you purchased covers carriage of goods by sea, then you cannot claim the proceeds of the insurance if the goods are lost while being transported through air. Even in the situation where the policy specifically stated that it covers the carriage of goods through a trucking service, if the goods are lost while transported through railways, then the claimant cannot claim. So, before you buy an offer, check out what modes of transportation are covered. It pays to read all the contents of the cargo insurance policy, including the “fine prints” and ask clarifications for any doubt you have.

Cargo insurance is a comprehensive topic but it is worth to learn some basic principles so that when you buy one, you will be more confident that you can successfully claim the proceeds when untoward incidents will happen resulting to the loss of your goods.

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