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Freight insurance

Millions of tons of goods and products move across the maritime routes every year. These routes bring with them certain perils like storms, pirates, icebergs, etc. Marine insurance helps in mitigating these risks. Thus it is imperative that goods and products transported using seas are insured for. These goods can not only be insured by shipping companies and individuals, but also freight forwarders. So, An Insurance agreement between freight forwards and insurance companies is called freight insurance.

Following aspects of freight insurance will be discussed below:

  • What is freight insurance
  • Freight insurance cost
  • Difference between cargo insurance and freight insurance

What is freight insurance?

Freight insurance is an agreement between a freight forwarding company and an insurance company. The insurance company agrees to indemnify the freight forwarding company against losses. In return of this indemnification, the insurance company receives a fee.
Freight insurance indemnifies the freight forwarder’s liability in the event the freight forwarder damages the trader’s goods due to the freight forwarder’s fault. That means, the trader will only receive compensation if it is proven that his goods are damaged due to the forwarder’s fault/negligence.

Further, coverage provided to the trader within a freight insurance contract does not cover the real value of the goods. The coverage is based on the good’s weight. So, the freight insurance coverage will be the same for a ton of flour as it is for a ton of precious metals.
The cost of freight insurance is passed on to the end trader and will reflect in his bill as “Freight Insurance Charges”

Freight insurance cost

Freight insurance premium is based on the weight and the value of the cargo. The higher the value/weight, the higher the premium payable. Remember, freight insurance does not cover the real value of the goods. If you need an insurance policy that provides coverage against the real value of your goods you will need to consider a cargo insurance policy. A cargo insurance policy will cover the real value of the goods.


Difference between cargo insurance and freight insurance

Freight insurance and cargo insurance are usually used synonymously. This should not be the case. Mentioned below are the distinctions between the both.


Cargo Insurance

Freight Insurance


Cargo insurance is an agreement between the trader and the insurance company.

Freight insurance is an agreement between the freight forwarder and the insurance company.

Maximum Coverage

Cargo insurance can provide coverage up till the real value of the goods.

Freight insurance will only provide coverage based on the weight of the goods.

The Cost of Premium

Premium is generally higher compared to freight insurance.

Premium is generally lower compared to cargo insurance.

Calculation of Premium

Premium is calculated on the basis of weight, size, and real value of the insured goods.

Premium is calculated based on the weight of the insured goods.


Claims can be made based on specific policy terms

Claims can only be made if the fault is of the freight forwarder

Is it Mandatory?

Not Mandatory

Not Mandatory

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