Shipping Goods Internationally? Here’s What Freight Insurance Covers

When you’re shipping goods internationally, anything can happen between the warehouse and the final destination. Maybe a storm disrupts an ocean voyage, or a customs delay in another country leads to cargo theft or spoilage. These are more than just unfortunate mishaps—they’re costly risks that can derail your bottom line. That’s where freight insurance comes in.

International shipping is the backbone of global trade, but it’s not without its pitfalls. With the volume of goods moving across borders at an all-time high, freight insurance has become more important than ever. Whether you’re a small business sending your first container abroad or a seasoned exporter with global clients, knowing what freight insurance actually covers can help you ship smarter and sleep better.

In this post, we’ll break down what freight insurance is, what it typically covers (and doesn’t), why it matters, and how to choose the right type of policy. By the end, you’ll be equipped with the knowledge to protect your cargo and your business, no matter where in the world it’s headed.

What Is Freight Insurance and Why You Might Need It

Freight insurance, also known as cargo insurance, is a specialized policy that protects goods while they are in transit—whether by sea, air, rail, or truck. It is designed to cover loss, damage, theft, or other unexpected events that occur between the point of origin and the final delivery destination. Unlike carrier liability, which offers limited protection based on weight or mode of transport, freight insurance provides broader coverage and higher compensation.

For example, if you’re shipping a container full of electronics overseas and it’s damaged in a port accident, carrier liability may only reimburse a fraction of the cargo’s value. Freight insurance, on the other hand, can cover the full invoice value of the shipment, including freight charges and potential profit loss.

Freight insurance is essential because international shipping routes are exposed to a wide range of unpredictable risks—extreme weather, political unrest, cargo handling errors, and even piracy in some regions. Without insurance, any of these events could turn a profitable deal into a financial disaster. That’s why many logistics experts recommend full-value cargo insurance, especially for high-value or time-sensitive goods.

Key Types of Freight Insurance Coverage

When selecting freight insurance, it’s critical to understand the different types of coverage available. The most common are All Risk, Named Perils, and Total Loss policies. Each offers a different level of protection and is suited to different types of shipments.

All Risk coverage is the most comprehensive. It protects against almost every kind of physical loss or damage that might occur during transit, as long as the cause is not specifically excluded. This type of insurance is typically used for new, packaged, or containerized goods. It’s ideal for businesses that want full peace of mind and are shipping high-value items.

Named Perils coverage is more limited and only insures against specific risks that are listed in the policy—such as fire, theft, or sinking of the vessel. This type of policy might be more affordable but offers less protection, making it a better fit for lower-value shipments or goods not as susceptible to damage.

Total Loss insurance is the most basic. It only covers complete losses, such as when a ship sinks or a container is entirely destroyed. It does not cover partial damages. While this might sound too risky, some companies opt for it when insuring bulk commodities like grain or minerals, where partial damage is less of a concern.

Understanding the type of freight insurance you need depends on your cargo, route, and budget. Partnering with an experienced freight forwarder or insurance broker can help you assess the risks and choose the best option for your business.

What Freight Insurance Typically Covers

Freight insurance policies are designed to protect your goods from a wide variety of risks, but what’s covered depends on the policy you choose. Still, there are several common areas of coverage most international freight insurance policies include.

Physical damage during loading, unloading, or transport is one of the primary reasons shippers invest in coverage. This includes drops, collisions, container crushes, or shifting cargo that breaks en route. These accidents happen more often than you might think, especially in busy ports and airports.

Theft and pilferage are also covered in most comprehensive policies. While high-security supply chains exist, cargo theft remains a persistent problem in certain parts of the world, especially at depots or during customs delays. If goods go missing while under third-party care, insurance can help recoup your losses.

Natural disasters like hurricanes, floods, or earthquakes that impact cargo while it’s in transit are also typically covered under All Risk policies. These events may be rare, but when they do occur, they can wipe out entire shipments.

Accidents involving the transport vehicle—such as shipwrecks, truck crashes, or plane incidents—are usually covered under most types of policies. If your goods are part of a container on a vessel that runs aground, your insurer may cover the cost of damages or replacement.

Another unique aspect of international shipping is general average, a maritime law principle where all cargo owners share the financial burden of a ship’s emergency sacrifice. Freight insurance covers this obscure but potentially significant expense, protecting you from unexpected shared costs.

What Freight Insurance Doesn’t Cover

Just as important as knowing what’s covered is understanding what’s not. Freight insurance has exclusions that can catch unprepared shippers by surprise. Being aware of these can help you avoid denied claims and better manage your logistics planning.

Improper packaging is one of the most common reasons for denied claims. If your goods are not packed according to industry standards or clearly couldn’t have withstood normal transport conditions, insurers will likely reject your claim. It’s vital to follow packaging guidelines provided by your carrier or insurance provider.

Inherent vice or the natural characteristics of a product that make it prone to damage is another common exclusion. For example, perishable items that spoil or metal goods that corrode without external damage may not be covered unless you have a specialized policy.

Delays, even those caused by customs or transportation strikes, are generally not covered. Freight insurance is designed to protect physical goods, not to compensate for business losses due to shipping delays. If timing is critical for your operations, consider pairing freight insurance with business interruption coverage or supply chain risk management tools.

War, strikes, riots, and civil commotion are often excluded unless specifically added through a rider or endorsement. In politically unstable regions, this kind of add-on coverage might be a wise investment.

Finally, normal wear and tear, temperature fluctuations (unless you have temperature-controlled coverage), and loss due to financial insolvency of carriers are typically not covered under standard policies.

How to Choose the Right Freight Insurance Provider

Not all insurance providers offer the same level of service or expertise in the international shipping industry. Choosing the right freight insurance provider can mean the difference between a smooth claims process and a long, costly headache.

First, look for providers or brokers who specialize in international freight or marine cargo insurance. They understand the unique risks involved with global logistics and can tailor policies to fit your cargo, routes, and regulatory concerns.

Check their claim settlement record. A provider with a reputation for fast, fair settlements will save you stress when things go wrong. Look for reviews, case studies, or testimonials from other shippers in your industry.

Evaluate the ease of communication and documentation. Are they responsive to your questions? Do they offer online claim filing or digital tools for policy management? Efficient customer service is crucial when time-sensitive claims are involved.

It’s also wise to consult your freight forwarder or logistics provider. Many offer cargo insurance as part of their service package or can recommend trusted partners. Just be sure to review the policy carefully—some default offerings may be minimal and require upgrades for full coverage.

Compare quotes, but don’t make your decision based on price alone. A cheaper policy that doesn’t fully cover your goods or has complicated claim terms might cost you more in the long run.

Real-World Example: How Freight Insurance Saved a Business

Consider the case of a U.S.-based textile importer shipping 40,000 yards of premium fabric from India to New York. Midway through the voyage, the vessel was forced to jettison containers during a severe storm in the Atlantic. Unfortunately, the textile container was among those lost.

Because the importer had opted for All Risk freight insurance, their insurer reimbursed them for the full value of the shipment, including transport fees. While the incident still caused supply delays, the financial impact was cushioned significantly. Without insurance, the business might have faced tens of thousands of dollars in unrecoverable loss, jeopardizing their customer contracts.

This example shows how freight insurance doesn’t just protect goods—it protects business continuity and client trust.

Conclusion

Shipping goods internationally brings great opportunity but also substantial risk. From damaged cargo and theft to unpredictable weather events and legal entanglements like general average, the global shipping environment is full of variables outside your control. That’s why freight insurance isn’t just a backup—it’s a business essential.

By understanding what freight insurance covers, what it excludes, and how to choose the right policy, you position yourself to handle the unexpected with confidence. It’s not just about recouping losses—it’s about maintaining trust, meeting deadlines, and safeguarding your bottom line.