Every Friday, we answer a common question about fulfillment, shipping, or business. This week’s question comes from one of the fans who entered our giveaway contest for a copy of the board game Teotihuacan. Today we will answer the following question: “how does shipping insurance work?”
Shipping has become remarkably fast and reliable. Even still, it’s an act of faith to enclose something valuable in a box and put it in the mail. You hope that it will arrive at its destination. Yet sometimes packages are lost in the mail or stolen from the doorstep. Customers have high expectations and replacing every single lost or stolen package can add up quickly.
This is where shipping insurance comes in. Simply put, if a package is insured and then lost, stolen, or damaged, the shipper will be reimbursed for the declared value of the items in the package. Carriers such as UPS, FedEx, and USPS allow shippers to insure packages when buying postage. If you want to save extra money, though, you can use an external vendor such as Shipsurance for shipping insurance instead. (Incidentally, this is a service we provide.)
Now, of course, if you’re the shipper, the money won’t automatically appear in your bank account whenever a package is lost, damaged, or missing. You must file a claim, which you can usually do through the carrier who shipped the package.
Buying shipping insurance might make you feel better in the moment, but it’s not always the right thing to do. If you’ve ever bought a large appliance or rented a car, you know that it’s easy to be upsold insurance and warranties that you don’t need. Shipping insurance may or may not suffer from the same problem, depending on your business model.
We love the way ShippingEasy put it in their guide on this subject. Take the percentage of shipments lost, damaged, or stolen and multiply it by the average order value. If the result is greater than the average insurance cost per item, then get the insurance. Otherwise, skip the insurance.
Not sure how much shipping insurance would cost? This guide on Bankrate shows how much it costs through USPS, FedEx, and UPS.
Bear in mind that not everything can be insured, too. For example, UPS will not insure cash, coins, or precious stones. Different insurance providers may have different restrictions, sometimes based on location or packaging. The point is: read the fine print before shipping insurance becomes a major part of your business.
Shipping insurance is an easy way for businesses that ship high-value items to mitigate risk. It’s not right for everybody or every business, but when it is, it’s very helpful!