Shipping is a critical link to customer satisfaction. Once a customer purchases a product, they expect it to arrive on time and in good condition. And if a package goes missing or arrives damaged, the customer expects a fast resolution. The first step is calling the carrier and attempting to track down the package, but when that fails, making it right with the customer becomes the central focus, often leading to replacing the product and shipping it quickly.
After ensuring that the customer is happy, the company is left with the bill, and it’s at this point that shipping insurance comes into play.
The majority of carriers, including UPS, offer shipping insurance to bridge the gap when an unexpected event occurs. And with 5.1 billion packages circling the globe annually, shipping mishaps do occur, although they are rare. Understanding how to get started with UPS shipping insurance helps minimize loss and ensure that the process moves more smoothly. But what is UPS shipping insurance, and how does it work?
Shipping Insurance: Understanding the Basics
Shipping insurance is a service that offers financial reimbursement if a package is lost, stolen, or damaged during the transit process. Most carriers, including UPS, provide a basic level of insurance. However, if you’re shipping a high-value item, you may want to consider purchasing additional insurance.
UPS automatically covers most packages up to $100 for both domestic and international shipments. Additionally, UPS provides declared value coverage for an additional fee for packages that exceed this amount. There are limits on the amount of insurance that can be purchased, which is currently set at $50,000 per package or $100,000 per pallet.
Some types of domestic packages have higher limits, such as a maximum declared value of $70,000, depending on the contents of the package. There are also limitations on what qualifies for coverage, and we’ll discuss those shortly. The cost of the insurance has risen slightly each year, and current rates can be found on the UPS rate and service guide page.
Shipping insurance is a good option if you’re sending valuable goods or a one-of-a-kind item with UPS. Even if the cost of goods is minimal, the no-cost insurance that UPS provides can help with replacing the item in the event of loss.
Understanding Declared Value
When filling out a UPS shipping form, you’ll see a spot for the declared value of the item. Additionally, a UPS worker might ask you about the value of the item when you’re purchasing additional insurance for a package. So what is this referring to?
The declared value is the amount of money that you state the package is worth. This doesn’t take into account the packaging materials or the cost of shipping, but simply accounts for the value of the item. During the claims process, this is the amount that is considered when determining the payment for the claim. Supporting documentation may be required during the claims process, but when purchasing insurance, you simply need to state the value. According to UPS, the declared value is the lowest of the following amounts:
- The cost of repairing or replacing the merchandise up to $100 if there is no value declared in excess of $100
- The cost of repairing or replacing the merchandise up to the declared amount if the package had a declared value
The cost paid is the actual cost of the damaged or lost property, and the replacement cost includes the amount charged for repairing or replacing the item. Repair quotes are UPS’ responsibility; however, you may provide a third-party repair evaluation. If the third party says the item can’t be repaired, the actual or replacement value will be paid up to UPS’ maximum liability.
The Fine Print of Shipping Insurance
Shipping a product to the customer includes many expenses, including the employees’ time, the packing materials, and the cost of shipping. Additionally, there is the actual cost of the product. UPS only pays the actual cost of the product should an unexpected shiping event occur. The cost of these other items are not included.
That’s why it’s a good idea to read the fine print to fully understand what’s covered and what isn’t when purchasing shipping insurance. For example, if you have purchased additional insurance, you don’t want to later learn that an item is excluded when making a claim. A number of items are excluded from the company’s insurance, such as coins, cash, or precious stones. Other carriers, such as Federal Express and the United States Postal Service, have similar exclusions.
UPS has other limitations based on the type of commodity that is shipped, which are outlined in the “liability limits” section of the UPS/Tariff Terms and Conditions. According to UPS’ website, common items and applicable restrictions include the following:
Checks: If a package containing a check is lost or damaged, UPS will not pay for the face value of the check. UPS’ liability for a package containing a check or checks is limited to the cost of stopping payment on and reissuing the check(s), not to exceed US$100 per package.
Phone Cards, Tickets, Gift Cards and Similar Cards: UPS’ liability for a package containing a phone card, ticket (such as an event or airplane ticket), gift certificate, gift card, coupon or other similar printed matter with an exchange value is limited to the cost of replacing the physical card(s), certificate(s) or printed matter, not to exceed US$100 per package. As with checks, UPS is not liable for the face value of any phone card, gift certificate, gift card, coupon or similar printed matter.
Media: UPS’ liability for loss or damage to a package containing documents, film, photographs (including negatives), slides, transparencies, videotapes, compact discs, laser discs, computer tapes and media of a similar nature is limited to the replacement cost of the media on which the content is recorded.
Pairs, Parts: In the event of loss or damage to a pair or set of articles, UPS’ liability is limited to the value of that part of the pair or set that is lost or damaged, and UPS shall not be liable for the value of the whole pair or set. In the event of loss or damage to any part of the property (including any part of a machine) that, when complete for sale or use, consists of several parts, UPS shall be liable only for the value of the part lost or damaged, not to exceed the declared value of the part lost or damaged. In no event shall UPS be liable for the value of the complete item.
Insurance limitations may also apply to the shipping location. Check with UPS to ensure that if you purchase additional shipping insurance, the area where you are shipping to is covered, especially when shipping items internationally.
Packing Rules and Restrictions
One more thing to consider is insurance packaging. For example, let’s say that an employee improperly packages an item. When the item arrives at the customer’s address, it’s damaged. You replace the item and then open a claim with UPS. The carrier will likely request to see the shipping packaging, and upon review, may determine that you did not follow their requirements for packing the item, and are therefore not protected under the insurance program.
UPS uses a third-party vendor to manage this process for insurance claims that exceed $100, and the vendor adheres to the small package carrier standards, known as the ISTA 3-A packaging guidelines, to analyze the integrity of the packaging job.
For example, one requirement is that you “always use new or like-new packaging.” That means that if a low-quality box is used, damages might be excluded and not covered in the event of damage during transit.
What to Expect When Filing a Claim With UPS
A customer calls your business, angry because a package is late or has never arrived. A quick investigation with UPS determines that the package cannot be located. This is a rare event, but one that requires quick action. A replacement product is sent to the customer with an apology to ensure that they aren’t dissatisfied. But at this point, you’re left dealing with recovering the loss.
As soon as you suspect a package is lost or stolen, file a claim with UPS right away. UPS gives shippers up to nine months to file a claim; however, filing a claim quickly will ensure that you have all the documentation the carrier might request. For example, supporting documentation may be required, such as photos of the item, or information about the value and packing material in the case of damaged products.
The first step that occurs when filing a claim is the search for the package. If the package is not located, UPS sends a letter that authorizes the claim. At this point, documents are sent to the third-party company UPS uses to process claims. Once the carrier has the documentation, the process unfolds quickly. On average, UPS says the process is typically completed within five to 10 business days. For domestic shipments, claims must be filed within nine months after the delivery date of the package, and for international shipments, claims must be filed within 60 days.
It’s also important to note that replacement of a product may not be provided when an item can be repaired. For example, let’s say that you’re shipping a computer. The computer arrives damaged and not working, but upon further examination, it’s determined that the video card is broken. In this situation, the carrier wouldn’t pay to replace the entire computer, but instead to replace and repair the video card.
Shipping with Greater Peace of Mind
Although billions of packages are circling the globe each year, your chances of losing a package with UPS are rare. But when it does occur, the process is frustrating. First, the company must deal with the frustrated customer, making things right on their end. Then they must invest time in recovering what they can of the loss. It’s not an ideal situation, but by planning for a small number of packages to have this problem, processing the issues will be easier, and having the right insurance in place is key.
Setting internal policies for handling lost packages is critical to making the process smoother. If a customer calls and says a package is lost, missing, or damaged, what will your company do? Making sure that everyone is following the same policy will streamline the process and mitigate the risk for additional customer aggravation.
Taking into account the value of the item that you’re shipping and UPS’ insurance maximums will help create better decisions and policies. Additionally, when you understand the fine print of UPS insurance coverage, such as the exclusion of coins and other items, you’ll know what to expect in these situations.
Many different factors play a role when you decide to purchase shipping insurance, but by keeping all these details in mind, you can mitigate risk and ensure that your item arrives at its destination with greater security.
Shipware delivers volume parcel and less-than-truckload shippers intelligent and innovative distribution solutions and strategies. Whether you ship with FedEx, UPS, USPS or regional carriers, our contract negotiation and invoice audit services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption to current operations. Our team of experts has over 200 combined years of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts – saving our clients an average of 19 percent of their annual shipping spend.