Freight Insurance Explained: Coverage, Cost & Why You Need It

Picture this: a truckload of your best-selling stock is on its way to a major customer. You booked a reliable carrier, tracked the consignment and promised your customer a delivery window. Then the phone rings. The truck has been in an accident on the highway and the load is written off. Who pays for that loss?

Many businesses assume the carrier will simply reimburse the full value of the goods. In most cases it won't. That gap is why freight insurance matters. This guide gives you freight insurance explained in plain English: what freight insurance coverage protects, how it differs from carrier liability, what drives freight insurance cost, which policy types are available in Australia, and how to make a claim if something goes wrong.

Whether you import containers by sea freight, fly urgent parts in by air freight or move pallets interstate, the principles are the same.

What Is Freight Insurance?

Freight insurance (often called cargo insurance, marine cargo insurance or goods in transit insurance) protects the value of your goods while they are being moved from one place to another. It applies whether your cargo travels by road, rail, sea or air. If your goods are moving, they are exposed to risk.

Think of it as travel insurance for your products. If your shipment is lost, stolen or damaged during transit, a suitable policy compensates you for the insured value of those goods, subject to the policy terms, exclusions and excess.

In Australia, marine insurance contracts, including cover for goods carried by sea and air, are governed by the Marine Insurance Act 1909. Domestic goods in transit cover for road and rail is generally written as general insurance.

How Does Freight Insurance Work?

You (the shipper, buyer or seller, depending on your trade terms) pay a premium to an insurer. In return, the insurer agrees to pay you if an insured event damages or destroys your cargo while it is covered.

It sounds simple, but many businesses skip it because they believe the carrier already covers them. That assumption is one of the most expensive mistakes in logistics, and it features in our list of common freight forwarding mistakes importers make.

Key Terms You Will See

• Insured value: the amount your goods are insured for, usually based on the commercial invoice plus agreed additions such as freight and insurance costs.
• Premium: what you pay the insurer for the cover.
• Excess (deductible): the part of each claim you pay yourself before the insurer pays the rest.
• Certificate of insurance: the document confirming that a particular shipment is covered, often required by banks or buyers.
• Product Disclosure Statement (PDS) and policy wording: the documents that set out exactly what is and isn't covered.

Freight Insurance vs Carrier Liability: The Big Difference

If you only remember one section of this article, make it this one. Freight insurance vs liability cover is the comparison that catches out the most shippers. The two sound similar, but they work very differently.

Carrier Liability: The Bare Minimum

Every carrier has some legal liability for the goods it moves, but that liability is limited and depends on the carrier being at fault.

• Sea freight: in Australia, the Carriage of Goods by Sea Act 1991 applies a modified version of the Hague-Visby Rules. Carriers' liability is capped per package or per kilogram, and carriers can rely on a list of defences, such as perils of the sea and certain fires.
• Air freight: international air cargo is usually governed by the Montreal Convention, which limits the airline's liability per kilogram of cargo.
• Road and rail: domestic carriers usually set their own limits in their terms and conditions, and many limit or exclude liability unless you declare a value and pay extra.

Here is why relying on carrier liability is risky:

1. You often have to prove fault. To recover under carrier liability you may need to show the carrier was negligent or breached its contract. If a severe storm or other natural event damages the cargo, the carrier may not be liable at all.
2. The limits are based on weight or packages, not value. Liability caps are usually calculated per kilogram or per package. For light, high-value goods such as laptops, phones or precision instruments, the amount you can recover may be only a small fraction of what the goods are worth.
3. Recovery can be slow. Liability claims are frequently disputed, and resolving them can involve lengthy correspondence or legal action.

Worked example: you ship one carton containing a single laptop. The carrier's liability is calculated on the carton's weight, which is a few kilograms. Because the laptop is valuable but light, a weight-based limit leaves most of its value unprotected. A freight insurance policy, by contrast, is calculated on the laptop's insured value.

Freight Insurance: Protecting the Value of Your Goods

Freight insurance coverage is designed around the value of your goods, not their weight.

1. No need to prove fault. Under an all risks policy, you generally only need to show that an insured loss or damage happened during the period of cover. It usually doesn't matter whether it was caused by the driver, the weather or a thief.
2. Cover up to the insured value. If your goods are insured for their full value and they are lost, the insurer pays up to that value, less any excess.
3. The insurer chases the carrier. After paying your claim, the insurer can pursue the carrier itself (see subrogation in the FAQ below).

Carrier Liability vs Freight Insurance at a Glance

Understanding this difference is the first step to deciding whether you need a dedicated policy.

Freight Insurance Coverage: What Is Actually Protected?

Freight insurance coverage varies between insurers and policies, but a standard cargo policy typically protects you against the most common risks of shipping.

Physical Damage

This is the most common type of claim. It covers goods that are crushed, broken, bent or wet during transit.

• Example: a forklift drops your pallet while it is being loaded into a container, smashing the contents. Your policy covers repair or replacement, subject to the excess.

Theft and Pilferage

Cargo theft is a real problem across the supply chain. Entire trucks or containers can be stolen, or thieves may break into a trailer or container and take a few cartons (known as pilferage).

• Example: a truck is left parked unattended and thieves cut the seal and take part of your load. Your insurance pays for the stolen items.

Loss in Transit

Sometimes cargo simply goes missing. A pallet might be offloaded at the wrong depot, or a carton might be separated from the rest of the consignment and never found.

• Example: you ship ten crates but only nine arrive. The carrier cannot locate the missing crate, so your insurer covers its insured value.

General Average (Sea Freight)

General average is an old but very real maritime principle. If a ship faces danger, such as a fire or the risk of sinking, and the master sacrifices some cargo or incurs extraordinary costs (for example, salvage or towage) to save the voyage, every cargo owner on board shares the cost in proportion to the value of their goods. Adjusters usually apply the York-Antwerp Rules.

• Example: your containers arrive undamaged, but a fire elsewhere on the vessel led to a general average declaration. You are asked to provide security and contribute to the shared loss before your cargo is released. A cargo policy normally covers your general average contribution and the insurer can usually provide the guarantee the adjuster requires.

What Is Typically Not Covered? (Exclusions)

No policy covers everything, so read your policy wording carefully. Common exclusions include:

• Insufficient or unsuitable packing: if goods are poorly packed for the journey, damage caused by that packing is usually excluded. Good packing is part of your responsibility.
• Inherent vice: damage caused by the nature of the goods themselves, such as fresh produce that ripens and spoils, or metal that rusts because it wasn't protected.
• Delay: loss of market or financial loss caused by late arrival is usually excluded, even if the delay was caused by an insured event.
• Ordinary wear, leakage or loss of weight: normal losses expected for the type of cargo.
• Wilful misconduct and dishonesty: deliberate acts by the insured, and in many policies theft by your own employees, which needs a different type of cover.
• Customs or biosecurity action: if goods are prohibited, non-compliant or seized and destroyed by authorities, insurance generally won't respond. Our guide on what happens when customs seizes a shipment explains this further.
• War and strikes: often excluded from the base cover but can usually be added as an extension.

Types of Freight Insurance Policies

When you compare types of freight insurance, you will usually choose based on how often you ship and how much protection you want.

Based on How Often You Ship

1. Single transit (single shipment) policy
   • What it is: cover for one specific shipment.
   • Best for: businesses or individuals who ship freight only occasionally.
   • Pros: you only pay when you need it.
   • Cons: it is usually more expensive per shipment and needs arranging every time.
2. Open policy (annual or ongoing cover)
   • What it is: a policy that automatically covers all eligible shipments for a set period, within agreed limits.
   • Best for: regular importers, exporters, manufacturers and e-commerce businesses.
   • Pros: usually better rates, less paperwork for each shipment and simpler budgeting.
   • Cons: you may need to commit to a premium or declare your shipments regularly.

Based on Level of Cover

1. All risks cover (Institute Cargo Clauses A)
   • What it is: the broadest standard cover. It covers all risks of physical loss or damage unless the policy specifically excludes them.
   • Why choose it: it offers the widest protection and suits most general cargo.
   • Note: even all risks policies have exclusions, such as inherent vice, insufficient packing and delay.
2. Named perils cover (Institute Cargo Clauses B or C)
   • What it is: cover only for the specific events listed in the policy, such as fire, collision, vessel sinking or overturning of a vehicle.
   • Example: if theft isn't listed and your goods are stolen, you are not covered.
   • Why choose it: it usually costs less and may suit sturdy, lower-value cargo such as scrap metal or some raw materials.
3. Total loss only
   • What it is: pays only if the entire shipment is lost or destroyed, not for partial damage.
   • Why choose it: sometimes the only option for used goods or cargo where partial damage is hard to prove.

International Cargo vs Domestic Goods in Transit

International marine cargo policies cover imports and exports by sea and air, often from the supplier's warehouse to yours. Domestic goods in transit policies cover freight moving within Australia by road, rail or coastal shipping, such as pallets moved by interstate transport. Many open policies can cover both, so check what your policy includes.

Freight Insurance Cost: What Affects Your Premium

One of the first questions shippers ask is about freight insurance cost. For most cargo, the premium is worked out by applying the insurer's rate to the insured value of the shipment, and some insurers apply a minimum premium for each shipment or policy.

There is no single price, because freight insurance cost depends on the commodity, the insured value, the route, the mode of transport, the level of cover, your claims history and how often you ship. For many businesses, cover is modest compared with the value it protects, but the only way to know is to get a quote for your specific cargo.

Factors That Influence the Premium

1. Commodity type: lower-risk goods such as clothing, books or flat-packed furniture are generally cheaper to insure. Theft-attractive goods (electronics, phones, alcohol, jewellery) and fragile goods (glass, ceramics, precision instruments) usually cost more.
2. Insured value and valuation basis: a higher insured value, or a valuation that includes freight, duty or expected profit, means a higher premium.
3. Route and destination: routes with higher theft rates, political instability, piracy risk or poor infrastructure attract higher premiums or special conditions.
4. Mode of transport: air freight involves less handling and a shorter journey than sea freight, so some insurers treat it as lower risk. Road routes through high-theft areas can be priced higher.
5. Packing quality: professionally crated or palletised goods with a clean claims record may earn better terms. A history of packing-related claims usually pushes rates up.
6. Level of cover: all risks cover generally costs more than named perils or total loss only.
7. Excess: as with car insurance, agreeing to a higher excess usually lowers the premium.
8. Shipment frequency and volume: regular shippers on an open policy often pay less per shipment than occasional shippers buying single transit cover.
9. Storage periods: cover for goods held in a warehouse during or after transit may be included, limited or charged separately.

Freight insurance is only one part of your landed cost. To see how it fits alongside freight, customs and delivery charges, read our guide on how to estimate shipping costs accurately. When you are ready, request a freight quote and let us know the value and nature of your goods so we can discuss your shipment.

Why Freight Insurance Matters for Australian Businesses

You might be thinking, "We've shipped plenty of times without a problem. Why start paying now?" The importance of freight insurance isn't about what usually happens. It's about what could happen.

Financial Protection

For a small or medium business, losing a high-value shipment can be devastating. It can mean struggling to pay staff, suppliers or rent. Freight insurance for businesses acts as a safety net that keeps cash flow steadier when something goes wrong.

Protecting Client Relationships

Imagine your customer has ordered a critical machine for their factory, and the truck carrying it crashes.

• Without insurance: you may have to tell your customer you can't replace the machine until you have recovered your loss from the carrier, which could take a long time. You risk losing that customer.
• With insurance: you can arrange a replacement while your insurer handles the claim. You look like a reliable, professional partner.

General Average Protection

As explained above, if you ship by sea you can be asked to contribute to general average even when your own cargo is undamaged. Without insurance, you may have to provide a cash deposit or guarantee before the shipping line releases your goods, which can hold up your supply chain. A cargo policy normally covers this.

Cash Flow Management

Carrier liability claims can take a long time to resolve, particularly when fault or limits are disputed. Insurance claims are generally handled more directly under your policy terms, so your capital is not tied up while you argue with a carrier. This is one of the biggest freight insurance benefits.

Freight Insurance Policy Details: Reading the Fine Print

Before you buy, read the freight insurance policy details and PDS carefully rather than skimming them. Here is what to look for:

• Valuation clause: how the insured value is calculated.
  • Invoice value only: pays the price of the goods, without freight or other costs.
  • CIF plus 10%: a widely used basis that covers the cost of the goods, insurance and freight, plus an extra margin for expected profit and incidental costs. It also matches the minimum cover the Incoterms 2020 rules require a seller to buy under CIF and CIP terms (110% of the contract price).
• Duration of cover (transit clause): when cover starts and ends. Many cargo policies operate "warehouse to warehouse", starting when goods leave the supplier's premises and ending when they reach the final destination. Check that cover doesn't stop at the port or airport, and whether storage periods are limited.
• Excess: make sure it is an amount you can comfortably absorb.
• Exclusions and extensions: check packing, delay, war and strikes, and any special conditions for your commodity.
• Claims conditions: notice periods, documents required and steps you must take to protect the insurer's rights against the carrier.
• Geographical limits: confirm the policy covers your origin and destination countries.

Who Pays for Freight Insurance? The Role of Incoterms

Who insures the goods depends on the trade terms in your sales contract. The Incoterms rules published by the International Chamber of Commerce set out when risk passes from seller to buyer and, for two rules, who must buy insurance.

• CIF (Cost, Insurance and Freight): the seller must buy insurance for the buyer's benefit. Under Incoterms 2020, the minimum required is the more limited Institute Cargo Clauses (C) cover, so buyers often arrange broader top-up cover.
• CIP (Carriage and Insurance Paid To): the seller must buy insurance, and Incoterms 2020 requires the broader Institute Cargo Clauses (A) level of cover.
• FOB (Free on Board) and EXW (Ex Works): risk passes to the buyer early, so the buyer should arrange insurance for the main journey.
• DAP and DDP: the seller carries the risk until delivery at the named place, so the seller usually insures the transit.

If you import into Australia on FOB or EXW terms, arranging your own cover gives you control over the insurer, the level of cover and the claims process. For a full explanation of each rule, see our guide to what Incoterms are, and check unfamiliar abbreviations in our shipping terms and acronyms glossary.

How to Get Freight Insurance in Australia

Once you know you need cover, there are three main ways to arrange it.

Through Your Carrier or Courier

Many courier and express carriers let you add a declared value or optional cover when you book.

• Pros: convenient and quick to arrange.
• Cons: may cost more than a dedicated cargo policy, and the terms are often narrower. Declared-value cover may simply raise the carrier's liability limit rather than provide true insurance.

Through a Freight Forwarder

If a freight forwarder manages your logistics, ask whether they can arrange cover or work with your insurer.

• Pros: they already have your shipment details and can coordinate the paperwork with your booking.
• Cons: check exactly who the insurer is, what the policy covers and how claims are handled.

Through an Insurer or Insurance Broker

You can go directly to an insurer or use an insurance broker that specialises in marine cargo.

• Pros: tailored policies, open policy options and advice on the right level of cover for your goods.
• Cons: takes a little more setting up. Check that the insurer or broker is appropriately licensed to provide insurance in Australia.

Step-by-Step: Arranging Cover

1. Assess the value: know what your shipment is worth, including the invoice value and any freight and other costs you want covered.
2. Choose the policy type: single transit for occasional shipments or an open policy for regular trade.
3. Request a quote: provide the origin, destination, commodity, packing, value and mode of transport.
4. Compare the terms: check the level of cover, excess, exclusions and claims conditions, not just the premium.
5. Bind cover before the goods move: arrange and confirm cover before the shipment leaves. You generally cannot insure goods after a loss has occurred, and cover arranged late may not respond.

How to Make a Freight Insurance Claim

A well-prepared claim is far easier to settle. If your cargo arrives damaged or short:

1. Note it on the delivery paperwork. Record visible damage or missing items on the delivery docket or proof of delivery before signing. Avoid signing "received in good condition" if it isn't.
2. Take photos. Photograph the packaging, labels, seals, container and damaged goods before moving anything.
3. Keep the goods and packaging. Don't throw anything away or repair the goods until your insurer agrees, as they may want a surveyor to inspect them.
4. Notify your insurer and the carrier promptly in writing. Policies and carrier terms set notice periods, and some are short, especially for concealed damage. Holding the carrier responsible in writing protects your insurer's recovery rights.
5. Gather your documents. Typically the commercial invoice, packing list, bill of lading or air waybill, delivery docket, photos, survey report and repair or replacement quotes.
6. Lodge the claim. Submit everything your insurer asks for and keep copies of all correspondence.

Five Real-World Scenarios: Do You Need Freight Insurance?

These examples show how the decision usually plays out. Your own risk appetite and policy terms will shape the final call.

• Scenario A: you are sending a box of brochures to a trade show. The value is low and easy to replace.
  • Verdict: probably skip it. Carrier liability may be enough, and the paperwork may not be worth it.
• Scenario B: you are shipping custom-made furniture to a client. The goods are valuable, relatively light and easily damaged.
  • Verdict: insure it. A weight-based liability limit would cover only a small part of the value, and the risk of physical damage is high.
• Scenario C: you are importing a full container of electronics from overseas. The shipment is high value and theft-attractive.
  • Verdict: insure it before it leaves the supplier. Seawater damage, theft and general average are too costly to gamble on.
• Scenario D: you are shipping scrap metal of modest value.
  • Verdict: consider named perils or total loss only. Scratches don't matter, but you still want protection if the vessel sinks or the truck overturns.
• Scenario E: you ship goods to customers most days.
  • Verdict: look at an open policy. It is usually simpler and more cost-effective than insuring each shipment separately, which suits many e-commerce logistics operations.

Frequently Asked Questions

Does my general business insurance cover freight?

Often not. Many business property policies cover goods at your premises, not while they are on a truck, a ship or a plane. Some business packages include limited transit cover, so check your policy, but don't assume. For imports and exports, you usually need a specific marine cargo or goods in transit policy.

How much does freight insurance cost?

Freight insurance cost depends on the insured value of your goods, the commodity, the route, the mode of transport, the level of cover, the excess, your claims history and how often you ship. Premiums are usually calculated as a rate applied to the insured value, and some insurers apply minimum premiums. Ask an insurer or broker for a quote based on your actual shipment.

Can I insure used goods?

Yes, but it can be harder. It is difficult to prove whether a scratch or dent happened in transit or was already there, so insurers often offer only total loss or named perils cover for used goods. You may need to provide a pre-shipment condition report or survey, and good packing becomes even more important.

What is concealed damage?

Concealed damage is when the packaging looks fine from the outside, but you find the goods damaged when you open them. These claims are harder to prove because the damage could have happened after delivery. Unpack and inspect goods as soon as possible, and report any damage to the carrier and your insurer immediately, as notice periods for concealed damage can be very short.

Is freight insurance tax deductible?

For most businesses, insurance premiums paid to protect trading stock or business goods are a normal business expense. Your accountant can confirm how it applies to your circumstances.

Who is responsible for insurance in drop shipping?

If you sell the goods, your customer will usually see you as responsible when an order arrives broken, even if a supplier dispatched it. Check whether your supplier insures shipments, or arrange a policy that covers goods shipped by third parties on your behalf.

What is subrogation?

Subrogation is the insurer's right to recover what it has paid you from the party responsible for the loss, such as the carrier. Once your claim is paid, the insurer steps into your shoes and pursues the carrier. You may need to help by providing documents, and you should avoid signing anything that releases the carrier from liability.

Who pays for the insurance, the buyer or the seller?

It depends on the Incoterms rule in your sales contract. Under CIF and CIP, the seller must arrange insurance. Under FOB and EXW, the buyer takes on the risk early and should arrange cover. Under DAP and DDP, the seller usually insures the transit because it carries the risk until delivery.

What happens if I under-declare the value?

Under-declaring to save on the premium is a false economy. The insurer will pay no more than the insured value, and if your goods are under-insured, it may reduce your claim in proportion to the shortfall, even for partial damage. Always insure for the correct value.

Can I buy freight insurance after the shipment has left?

Cover should be arranged before the goods start moving. Some open policies automatically cover shipments from the moment the risk passes to you, as long as you declare them, but you generally cannot insure goods once you know a loss has happened.

This guide is general information only and is not insurance, legal or tax advice. Always read the policy wording and PDS, and seek advice from a licensed insurance professional about your own circumstances.

Talk to Omega Cargo About Protecting Your Shipment

Freight insurance works best when it is planned alongside the rest of your shipment: the right trade terms, sound packing, accurate documents and a smooth handover through customs and quarantine clearance and warehousing and logistics.

Omega Cargo helps Australian importers, exporters and e-commerce sellers move goods by air, sea and road. Request a quote or contact our team to discuss your shipment requirements, and mention the value and nature of your goods so you can plan the right protection for your cargo.