Insurance provides peace of mind when your goods are in transit, at any point in the supply chain.
There are two Incoterms
that clearly place responsibility on you to take out insurance for the goods you’re exporting.
- Cost, Insurance and Freight (CIF)
Under these terms, you need to pay for ocean freight cargo insurance and all transportation charges up to a named port.
- Carriage and Insurance Paid To (CIP)
This is similar to CIF, but applies to all forms of transportation to a named inland destination.
Other Incoterms do not place the obligation to provide insurance on you or your buyer. However, depending on the actual term used for each shipment, you or the buyer will bear responsibility for delay, loss or damage to the goods at some point during transit.
To protect yourself from financial risk, it’s important to ensure that the goods you’re sending are adequately insured. While it may seem easiest to transfer insurance liabilities to your buyer, it could potentially be risky if the goods arrive damaged when the buyer has not yet paid for them.
When entering into an agreement with an insurer, it’s important to familiarise yourself with some basic insurance principles.
- Duty of utmost good faith
You need to supply all relevant information about your products and the journey at the outset so that the appropriate premium can be calculated by the insurer. Read the contract carefully as the insurer needs to clearly state any exclusion clauses whereby you won’t receive compensation.
- Duty to act as though uninsured
Having insurance in place doesn’t mean you don’t have to take care that your goods are adequately protected. When packing parcels, make sure their contents are safe and secure in packaging fit for purpose. Similarly, insurers will only be willing to cover risk and not certain disaster from packing pallets badly.
It’s possible to ensure goods for a slew of risks, including loss, damage, terrorism, piracy, wars, strikes and unforeseen acts of nature, but the premium will increase in tandem with the number of risks covered. Some insurance policies include either excess, an amount deducted from a claim, or franchise, where no payment is made if the claim is lower than a predetermined percentage of the total value of the goods.
If you’re sending export orders regularly, then open cover
might suit you. This sort of insurance policy covers an unlimited number of shipments within an agreed timeframe or up to a certain value until either party cancels the agreement. You pay an annual premium based on an initial deposit and make a final adjustment according to the actual turnover value of goods you export.