Freight Forwarding & Incoterms: Key Terms Explained in Detail

An insurance premium is the cost paid to an insurer for providing cargo insurance coverage during the shipment of goods. This premium is determined based on factors such as the value of the goods, the level of coverage, the type of cargo, the destination, and the risks associated with the shipment (such as transit duration, weather conditions, or the nature of the transport route). The premium is usually calculated as a percentage of the total insured value, and it must be paid before the coverage becomes active.

The insurance premium covers a range of risks depending on the policy, such as damage, theft, loss, or destruction of goods during transit. There are different types of cargo insurance policies, including All Risks, which provides comprehensive coverage, and Named Perils, which covers only specific risks. The premium paid is often reflective of the scope of coverage chosen by the shipper. In addition to the goods’ value, the type of cargo (e.g., high-value or hazardous items) and the mode of transport (air, sea, rail, or road) also influence the premium.

Paying the insurance premium provides financial protection for businesses against the potential risks of international shipping. Without insurance, the financial loss from damaged or lost cargo can be significant. Therefore, the premium is a vital part of risk management in the global logistics process.

Overall, the insurance premium ensures that businesses are covered for potential risks during the shipment and helps protect against financial losses due to unforeseen circumstances.