Should You Use a Private Parcel Insurance Plan?

By December 10, 2018 News, Parcel Market Trends, Shipping Knowledge

A customer purchases a product, eagerly awaits its arrival — and then this happens: The package arrives late, in a damaged box, which is not what the customer expected when ordering the product. At this point, you have a frustrated customer on your hands, and how you handle this situation could have a ripple effect on your business.

These types of situations don’t happen frequently, but when they do, the costs add up fast for businesses. First, you must pay to send the customer an undamaged product, pay additional shipping, and manage the internal cost of getting it all done. Situations such as this result in companies asking whether they should invest in a parcel insurance plan.

Many considerations factor into this decision, including the cost of the items being shipped, the carrier used, and the risk of loss. Understanding the details of parcel insurance and how it can protect your business allows you to make a more informed decision.

Why Buy Private Shipping Insurance?

The number reason is reduced cost!  There are many different providers of private insurance, and Shipware is happy to set up clients and prospective clients with what we have determined to be the best program in the industry.

In a perfect scenario, packages wouldn’t get lost, stolen, or disappear in transit. And while these situations are the exceptions and not the rule, they do happen. Insurance offsets the cost associated with these situations.

What’s more, customer expectations are constantly rising, which makes it important to put shipping insurance on your radar. The decision to purchase insurance is pretty straightforward for high-value items, but when the product value is lower, that’s when the decision gets more difficult.

Gathering information is a good starting point; then you can decide whether to purchase insurance and put together policies for collecting the required information if filing a claim becomes necessary.

Understanding Potential Insurance Options

If you decide to purchase insurance for parcels, it’s good to know all of the available options. Most carriers, such as FedEx, UPS, and USPS, offer insurance, but they are not the only option. There are a few different options for purchasing insurance on parcels.

Carrier insurance. This is usually the first option that shippers consider when purchasing insurance. The major carriers offer insurance based on the “declared value” of the package. The declared value is simply a stated value, what you say the parcel is worth. If you file a claim, proof of that value is required.

Third-party insurance. (aka Private Parcel Insurance) In addition to the major carriers, third-party companies offer parcel insurance. These companies have their own shipping rules and regulations, so it’s wise to check those out before purchasing insurance. Some companies shipping a large number of parcels elect to use a third party for shipping because it drives down the overall cost of insurance and the claims process is expedited.

Self-insurance. Larger-parcel shippers might decide to self-insure, which means that they understand what is lost on shipping claims and elect to handle those claims internally with a preset budget. Most parcel shippers elect to use one of the other options, such as purchasing additional carrier insurance or third-party insurance instead.

How Much Does Parcel Insurance Cost?

An important consideration of parcel insurance is the cost. If you expect a certain number of claims each year, how much will you pay for insurance, and will that cost pay off?

If you’re using one of the major carriers, such as FedEx, UPS or USPS, for insurance, you know that each has their own set of pricing. And in many cases, the first $100 of coverage is free. But if you are shipping a higher-value item, it’s good to understand the cost of insurance and any potential exclusions and value caps. Here is a quick guide.

USPS Shipping Insurance Costs

USPS charges an incremental cost based on each $100 of insurance that you purchase. Rates increase occasionally, but here is an example of what to expect:

  • $100.01 – $200: $3.35
  • $200.01 – $300: $4.35
  • $300.01-$400: $5.50
  • $400.01 – $500: $6.65
  • $500.01 – $600: $9.05.
  • $600.01 – $5,000: $1.25 per $100 of incremental value.

If you plan to use international services, the cost varies by service. Check out additional details here.  

UPS Shipping Insurance Costs

The pricing below is for UPS service options that do not offer that first $100 of insurance for free, so you’re footing the entire cost. Here is a quick summary of what to expect for pricing based on the stated value of the package:

  • Value up to $50 is $1.65
  • $50.01 to $100 is $2.05
  • $100.01 to $200 is $2.45
  • $200.01 to $300 is $4.60
  • The price per additional $100 of insurance for items valued over $300 and up to $5,000 is $4.60 plus 90 cents for each $100 increment or fraction thereof.

Some UPS services, such as Express Mail, include the first $100 of coverage at no cost. Pricing for additional insurance includes the following:

  • The first $100 of value is still covered for free.
  • Value over $100 up to $200 is 75 cents.
  • $200.01 to $500 is $2.10.
  • $500.01 to $5,000 is $2.10 plus $1.35 per each $100 or fraction thereof.

FedEx Insurance Cost

FedEx shipping insurance costs vary based on the service level and various other factors. For comparison purposes, here is what you can expect:

FedEx SameDay: The maximum declared value is $2,000, and the cost for declared value is $2.70 for shipments valued up to $300 and 90 cents per $100 of declared value of shipments that exceed this amount.

FedEx SameDay City: Maximum declared value is $2,000, and the cost for declared value is $3 for shipments valued up to $300. One dollar per $100 is the charge for declared values over $300.

U.S. Express package service, U.S. Ground service and International Ground services. The cost is $3 for shipments valued up to $300. After this amount, it is $1 per $100 of declared value for shipments over $300.

As a general rule, third parties may provide options that the major carriers don’t, such as faster claims processing or covering all your parcels across various carriers. Additionally, the cost may be lower, depending on the third-party vendor. But regardless of which parcel insurance you chose, it’s important to understand any potential exclusions.

Understanding Parcel Insurance Limitations

Reading and understanding the fine print is critical when investing in parcel insurance. Some items aren’t covered, and others are covered; however, there are exclusions based on the type of protection. Understanding the fine print with each carrier or third-party vendor helps you determine which is best based on the type of parcels you ship.

For example, FedEx has limitations on the declared value limits on items such as art, photos, jewelry, antiques, and musical instruments. They permit a maximum declared value of $1,000, so even if the item is worth more, the insurance coverage won’t extend beyond that amount.

USPS limits coverage on fragile items, and, according to USPS DMM 609 “Filing Indemnity Claims for Loss or Damage,” USPS is exempt from paying insurance claims if the “fragile nature of article prevented its safe carriage in the mail, regardless of packaging.”

UPS has limitations on the type of commodity that is shipped, which are outlined in the Liability Limits section of the UPS tariff terms and conditions. A few of these items include checks, gift cards, phone cards, and some types of media.

Start by taking inventory of the types of products that your company ships. Check with the carriers that you frequently use to see whether those items are covered or have limitations. Knowing this up front can save money and time and prevent a situation where you think parcels are insured but they actually are not due to specific limitations and exclusions.

Understanding the Claims Process

The moment a customer calls and notifies you that a package arrived damaged or didn’t arrive at all, the claims process should be set in motion. Start collecting information you might need and get in touch with the carrier right away. The customer service team should know exactly how to take care of the customer and what information to collect, and they should pull together the items required to minimize risk of claim denial.

Depending on the carrier, there may be multiple ways to file a claim, including online or by email, fax, or phone. Decide on the process that you prefer and ensure that customer service team members use a consistent process for filing claims in order to minimize confusion.

It’s also important to note that some carriers have waiting periods before you can file a claim. This waiting period gives the carrier time to try to find the package before moving forward. For example, a carrier might require you to wait seven days before filing a claim, during which time the carrier will conduct a search for the package. If that package is not found, then you are free to move forward and file an insurance claim. For international shipping, the waiting period may be longer, so check with your carrier on the process.

Also, pay careful attention to parcel insurance rules for packaging items. A carrier or third-party insurance company may ask to view the packaging material involved with damage claims. Ask the customer to keep all packing material and damaged goods in the original form in which they were received. Packing and damaged goods shouldn’t be disposed of or given to the carrier prior to taking photos and documenting them.

The Importance of Acting Quickly During the Claims Process

Once you find out that a customer’s package is missing or damaged, move quickly to file a claim. There are two reasons why it’s important to act fast. First, the carrier requires specific items to support the claim. You will need to prove the value of the item, show documentation of how the item was packed, and provide other relevant information if it’s requested. The sooner you file, the easier it is to collect these items.

Second, most carriers have rules about when you can file a claim. As mentioned, there is usually a waiting period, mostly to give the carrier time to search for the package. Once that period has expired, there is a limited amount of time to open a claim. For example, for USPS Insured mail, you have up to 60 days. For UPS, it’s nine months for shipments within the U.S. and 60 days for shipments outside the U.S. And FedEx requires claims to be filed within 60 days from the insurance purchase date.

Once the claim is filed, you will need to wait for it to be processed. Typical processing time can range from seven to 10 business days. Some carriers will send a letter of authorization allowing you to file the claim, and once you provide supporting documentation, the claim will be processed for payment.

Moving Forward with Greater Peace of Mind

The decision to purchase insurance is an important one for businesses that want to minimize potential loss. There are many considerations, including the value of the items that you’re shipping and what carrier is being used to ship them.

However, if loss prevention is a concern for your business or you notice a high percentage of items having issues — either being damaged during transit or going missing — it helps to put some safeguards in place to minimize those losses. Parcel insurance plans can provide that peace of mind at a small cost per package to offset potential costs and keep your business running smoothly and better able to serve customers.

About Shipware

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.


Author Gordon Glazer

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