Many shippers assume that all they have to do is put in how much insurance they want on a shipment and they are covered for that amount.
That’s not always true. There is a specific method that MUST be followed to properly insure you for losses if there is an accident or unforeseen event that causes losses on your shipments.
Here are factors that must be considered.
- The value of the goods. Unlike carrier liability, with insurance you are going to insure your SELL AMOUNT of the product to your customer. Carrier liability ‘might’ cover what your costs are in a loss. Insurance is to insure your invoiced amount. Huge difference.
- Freight charges. If you want to be covered on what you paid in freight, it needs to be factored in.
- Cushion amount. The minimum is 10%. This is used to help ensure you are fully covered. Not adding at least 10% can cause a loss.
So to break that down. (invoice value + Freight) x 1.10 is a great method to use.
Sell rate to customer is $10,000
Freight is $400.00
Total is $10,400
$10,400 x 1.10 (to add 10%) = $11,440 is the total you will insure for.
What happens if you don’t add the 10%?
You will likely lose money. The insurance company WILL NOT look at the total “value” you insure, they will look at what percentage of the total value did you insure and than use that number to calculate how much they will pay.
Real life example of when I messed this up.
My father in law is a customer. I work very hard not to create awkward Thanksgiving Dinners so I make sure he is well taken care of in the freight world. He was one of my very first customers when I still had a lot to learn.
He had a shipment with a value of $120,000 that needed to be insured. So we did. But there was a wreck and it ended up in a total loss.
I did not insure the additional 10%. When I submitted the claim for $120K, the insurance company came back and said that since we didn’t insure it for the additional 10%, they would only insure it for 90% of the claimed value. He got a check for $108K and loss $12K of sell value.
He was cool about it because he pretty much broke even, but it’s still important to make the profit to pay for the time and energy to submit a claim.
Customer has a shipment with a total value of $25K, customer insures for $10K thinking that there’s no way a loss could be more than that. Submits a claim for $8K, insurance only pays $3200 because the customer only insured for 40% of the overall value so they are only going to pay for 40% of a claim.
It’s very imporant to understand this. Customers think that if they insure a “Value” that they can file a claim up to that amount no matter what and it will be paid. In nearly every case that’s not true. It’s important to insure for the full value of your sell, plus freight plust 10%.
Yet another example.
Customer has a shipment with a total value of $25K. Customer insures for $25k plus freight, plus 10%. Submits a claim for $8K. Insurance pays $8K + 10% – any deductibles. Customer is paid on his entire loss and is happy.
If any of this is confusing, call my cell phone at 269-414-0101. I’d be happy to discuss in detail. Whether or not you buy freight and/or insurance from us.