Cargo Insurance: Importance and Types of Cargo Insurance (Explained)

cargo insuranceCargo insurance is important in international trade. Different types of cargo insurance policies available for transporting goods by land, sea, or air. Businesses need cargo insurance to reduce risk in importing and exporting.

Cargo insurance is covered under risk policy or floating policies.

The cargo may be of any description, for example, wares, merchandise, property, goods and so on.

Duration of the risk of attaching from the time the goods leave the warehouse or another place of storage at the placement of the policy for the commencement of transit.

Importance of Cargo Insurance

The risk then continues during the ordinary course of transit to terminate on delivery.

Cargo insurance has coverage of loss or damage caused by war, civil war, revolution, rebellion, insurrection or civil strife or any hostile act, capture, seizure, arrest, restraint detainment, general average and salvage charges, strikes, riots, etc.

Trade coverage covers the insurance needs of the various type of cargoes of general nature.

A number of commodities and foodstuff provide for particular hazards. Institute of London Underwriters (ILU) have adopted uniform trade practices.

Which are followed by other insurers for insurance of cocoa, coffee, cotton, fats oil knots, hides, skins, leather, metal, oilseeds, sugar, tea an: so on are assured under a standard policy.

There is separate insurance of coal, Jute, Rubber, tanker, bulk oil, frozen products.

Types of Cargo Insurance Coverage

Different cargo insurance policies available for transporting cargo by land, sea, or air.

Common types of cargo insurance are;

  • All Risk.
  • Free of Particular Average (FPA).
  • Shipment-by-Shipment:

They are explained below;

All Risk

All Risk policy typically covers any physical loss or damage from external causes, with some exclusions listed.

This policy should cover include collision with an external object, jettison, train derailment, truck overturning, deliberate destruction, improper stowage by ship owners, theft, and acts of God (e.g. earthquake, lightning strike).

Free of Particular Average (FPA)

FPA or Free of Particular also known as a Named Peril policy, lists exactly what is covered by the policy.

Usually, theft is not covered by FPA policy. FPA usually covers collision, stranding, burning, sinking, train derailment, truck overturning, and some acts of God.


Shipment-by-Shipment insurance coverage through the carrier who is shipping your goods.

However; there may be certain exclusions, including defects in the transportation vessel, criminal acts on the part of the vessel’s crew, acts of God, and acts of war.

Risks Covered by Cargo Insurance

Risks Covered by Cargo InsuranceAll risks clause covers inland Transit risks also for the cargo insurance.

Loss or damage are covered if the risks occurred due to:

  • Fire
  • Lightning
  • Explosion
  • Riot, strikes, malicious damage
  • Impact by any rail /road vehicle
  • Storm, cyclone flood, inundation
  • Earth-quake, burglary accidental physical loss or damage.

A special declaration policy (SDP) is a form of floating policy issued to insured that have a large turnover with many and frequent dispatches of goods anywhere within the country by rail or road or in water warp.

MoreMarine Insurance /