Customers often confuse the terms ‘freight’ and ‘cargo’ as they are used interchangeably. This confusion leads to questions about the difference between cargo insurance policy and freight insurance. Both insurance plans aim to protect goods during transportation from damage or loss. They cover goods transported internationally or domestically through various modes like sea, air, land, or a combination of them.
So, what are the differences between cargo and freight insurance? Let’s start with the basics.
What is the Difference between Cargo and Freight?
Cargo and freight transportation are essential components of logistics and supply chains. Both phrases are fundamentally connected to the transportation of commodities. As a result, many individuals confuse the two. Though they serve the same objective, the two names differ in numerous ways. To make an educated business insurance decision, online retailers that ship and deliver items must understand the distinction.
Cargo
The phrase cargo refers to products conveyed by ship or plane. Sometimes, people also refer to mail as cargo.
Nevertheless, the term cargo referred exclusively to the products conveyed and did not imply payment or cash charged for the transport of goods. The commodity being carried is referred to as cargo. Big cargo containers are used to transport goods from one location to another. Alternatively, things can be moved using pallets, big handling nets, or whatever other suitable way.
Freight
Freight is commonly used to describe products conveyed by rail or truck. These transports are provided by freight vehicles or freight locomotives. However, items can also be delivered by air, which is known as air freight. Furthermore, freight can refer to cargo being delivered by truck, train, plane, or ship. Freight, however, is solely linked with commercial items. As a result, mail cannot be labelled freight as it is not commercial.
Freight can be defined as a product, item, or payment. Unlike cargo, the word ‘freight’ also refers to payment. As a result, freight charges are the fees for shipping a product.
Freight Insurance Vs Cargo Insurance Policy
Coverage under Freight Insurance and Cargo Insurance Policy
Cargo insurance policy is required if you, as the product sender, wish to be reimbursed for the full price of the delivered items in the case of damage or loss. To be compensated, such incidents do not have to be triggered by mistakes or carelessness on the side of the freight transporter or forwarder. Cargo insurance plans can cover a variety of hazards, including incorrect loading/unloading, mishaps, fire, theft, severe weather, and other natural catastrophes.
Freight insurance protects a freight forwarder against liability for loss or damage to the customer’s products while en route. For the claim to be receivable, any such harm or damage must be induced by the respective freight forwarder’s carelessness.
The freight insurance plan uses the quantity of the products to determine the coverage. In the case of a claim of freight insurance coverage, for instance, the same sum would be paid out for 1 kilogram of silver as it is for 1 kilogram of paper.
Who are the parties under coverage?
Although freight insurance coverage is not compulsory, typically, freight forwarders obtain coverage to protect themselves from liability stemming from circumstances in which mistakes or carelessness result in lost or destroyed products.
The freight shipping company pays for this coverage, but it is carried on to the product sender when the shipping company’s service is employed. The freight insurance cost is often contained in the customer’s shipping quotation and is subsequently added to the amount the customer pays.
A cargo insurance plan is typically obtained by the person who sends the products. Nevertheless, in some situations, you may arrange for a cargo insurance plan via your shipping company or transporter, who will communicate with the insurance coverage and secure the packages in transit.
Premium Calculation in Freight Insurance and Cargo Insurance Policy
Freight insurance plans are usually reasonably priced based on some parameters. Here are the factors which contribute to the premium calculation of the plans.
- An estimated volume of the freight.
- Journey duration
- Natural forces in question.
- Other terms and conditions
Cargo insurance plans, as opposed to freight insurance policies, which pays out based on the volume of the package, are intended to refund the full price of the transported items if they are somehow lost or destroyed in transportation. This extensive insurance plan will also include numerous hazards and will take into consideration features such as:
- Where the cargo originated from and where it is headed.
- What path is the shipping company or transporter taking?
- The type of cargo – whether it is dangerous, fragile, consumable, or otherwise.
- The cargo’s volume, size, as well as dimensions
Eligibility for buying Freight Insurance vs Cargo Insurance Cover
Freight insurance policies can be bought for commercial purposes. It is commonly purchased by freight forwarders or shippers when tasked with transporting huge amounts of products.
Even though freight insurance may seem like an added expense that experienced shippers don’t need, the truth is it’s actually quite a valuable service to keep the items safe. Freight liability insurance covers the product if it gets lost or damaged during transit. Having this extra protection can help the shipping companies sleep easier at night, knowing that if anything unfortunate were to happen, they are covered.
Cargo insurance cover plans are bought by anyone looking to cover their products in transit. Since these plans offer the total value of products lost or damaged during transportation, the estimated value of all the cargo needs to be reported to the insurance provider.
When it comes to shipping cargo, a cargo insurance protection plan is a must. In many cases, you can obtain additional coverage from the shipping company that you hire to complete the task. But if at all possible, it is recommended that you purchase your own cargo insurance plan to ensure that you know the details of the plan coverage as well as your products are protected against loss or damage during transit.
The Bottom Line
It is not that difficult to understand the difference between cargo insurance and freight insurance. There are quite a few factors that need to be considered before opting for either one, so one needs to be sure of his decision before making an informed choice.
However, both these insurance policies are important in their own way. While cargo insurance plan is meant for the product sender, freight insurance plans are made for shipping companies to cover goods during transportation.
Therefore, in order to ensure the safety of their cargo, it is better to get all their goods insured with one of these policies to avoid the hassle and expense of dealing with a loss or damage. The documents on the policy that arrive along with the policy should state some important information regarding a new deductible on either of the plan. This deductible is what you would be required to pay if you are filing an insurance claim. Paying this deductible will be necessary when insuring the products against freight or cargo loss while in transit. Also, it is important that cargo protection insurance includes transit damage to both commercial and personal goods, while freight insurance is strictly for commercial purposes.
About The Author
Simran
MBA Insurance and Risk
With extensive experience in the insurance industry, Simran is a seasoned writer specializing in articles on marine insurance for SecureNow. Drawing from 5 years of expertise in the field, she possesses a comprehensive understanding of the complexities and nuances of marine insurance policies. Her articles offer valuable insights into various aspects of marine insurance, including cargo protection, hull insurance, and liability coverage for marine-related risks. Renowned for their insightful analysis and informative content, Simran is committed to providing readers with actionable information that helps them navigate the intricacies of marine insurance with confidence.
