Import export insurance is a form of financial protection that many importers and exporters use to protect their shipments. There are plenty of things that could go wrong with shipments when they travel across country borders. Having insurance on your goods will ensure that any financial losses you suffer will be reimbursed
Import export insurance is used for financial protection from anything that could go wrong during the shipping process. This includes buyers not paying for your product, goods becoming damaged during shipping, or political upheaval in the destination country
Import export insurance comes in a variety of different coverage plans that will financially protect you from the scenarios above. In this article, we will discuss each coverage plan in more detail.
Import/export insurance protects you from damages that your items could incur during their journey to you or a buyer. Having insurance coverage on goods is beneficial in the long run, particularly if your goods are high-value.
When you get import export insurance (sometimes referred to as cargo insurance) you enter into an agreement with your insurer. The insurer is bound to reimburse you for any damages that could occur when your import or export makes its way to the United States.
Like any other type of insurance, cargo insurance has many different plans to choose from. Each plan will cover different amounts and types of losses.
As we have already discussed, there is a good amount of risk involved in importing and exporting products around the world. When your goods are on their journey to their destination, they can be transported using a variety of shipping methods, like trailers, trucks, planes, or cargo ships.
In those environments, your goods can receive damage from several different sources. Packages can fall and bounce against other packages. Goods that are susceptible to temperature could be damaged by the heat of a cargo container, truck or trailer. The list goes on.
Your goods will be handled by different people when they are loaded and unloaded from the vehicles that carry them. You won’t have any control over how careful those workers will be when they handle your goods.
Another possibility is that your goods might not ever get to you or the buyer. Packages can be misplaced and ultimately lost while in transit.
All of these incidents could occur and you have very little control over any of them. Having insurance on your goods is important because you will be covered should one of these unfortunate accidents happen.
Every business can reap the benefits of having insurance to protect itself. However, if you run an import business, export business, or a business that does both, then you should have your goods insured. The risk of something happening to the goods you ship increases the more often you ship.
Import/export business insurance is great for a small business as well. The financial consequences of imports or exports being damaged can be much more harmful to a smaller business than a larger one.
Plenty of businesses do not have protection for the goods that they import and export simply because they think it is expensive. What is expensive is the amount of money you could lose if imports and exports are lost. Your goods are like investments and you might as well protect them on their journey to you or a buyer.
Different insurance providers offer different policies and services. That said, most import/export insurance agencies function the same way that other insurance companies do.
You will owe payments, otherwise known as premiums, to the company of your choosing. In return for these payments, your insurer will cover any losses that you might have. Premiums will vary, meaning that the more you pay, or the higher the level of coverage you choose, the more you will be reimbursed for loss or damage to your goods.
There are many types of insurance that you can use to protect the goods that you import or export. Choosing which one comes down to what you think will be most beneficial.
The following are import/export insurance types:
An extremely popular type of insurance among import and export companies is export credit insurance. Many companies fear that foreign buyers will fail to pay for their goods. This fear prevents them from conducting business beyond U.S. borders
However, export credit insurance protects you if a foreign buyer does not pay for their goods.
Should the buyer fail to make the payment, your insurer will pay 80 to 90-percent of the loss.
Despite the name, this type of insurance doesn’t exclusively cover items that travel overseas. Marine insurance provides coverage for goods as soon as they leave the care of the supplier and come into the care of the buyer.
During the whole journey that an import or export makes there is the possibility that something could go wrong. Marine insurance is the most flexible because it will cover your goods during the entirety of their journey.
This type of insurance is good to use if you are conducting business in a foreign country with an emerging economy. These types of countries have a large amount of risk associated with them. Oftentimes governmental authorities will confiscate goods. On other occasions, you might not receive payment for the goods you export to countries with emerging economies.
Political risk insurance is great to protect your goods if they are going to a country that has political instability. Unstable countries could have riots, wars and other catastrophic events that could damage your goods. This type of insurance will also protect you from direct foreigner discrimination which is used by some developing countries as a means to favor local businesses.
Countries with emerging economies can be unstable, but they offer a fresh new market for trade. Political risk will allow you to explore these fresh markets while also giving you much-needed protection.
When you export goods, you have to make sure that they meet the import criteria of the country you’re sending them to. Despite your best efforts to do this, there is the possibility that your goods won’t meet the regulations of that country and won’t make entry.
The purpose of international product liability insurance is to cover the type of goods that don’t make entry into a country. That doesn’t mean you can carelessly export any product you want without researching the regulations of that country.
This type of insurance is meant to be used if a policy detail was changed at the last minute. Be sure to do research on the goods you want to import or export. That way if your goods don’t make it into a country you can prove that you did your best to follow regulations.
Import/export insurance costs depend on many different factors. For one, the different types of insurance that we covered above will all have different premium rates. Additionally, insurance companies will offer slightly different premium rates that vary from one to another.
While we can’t give you an exact number for the cost of premiums for each type of insurance, we can tell you how to calculate them.
Since international product liability insurance is a popular form used for imports and exports, we will provide you with an example. If you were to sell $2 million worth of goods a year, international liability insurance would cost you $0.25 per $100. That total would come out to $5000 worth of insurance on $2 million worth of goods.
|Value of Goods Sold||$2 Million|
|Insurance Rate||$0.25 per $100|
|Total Insurance Cost||$5,000|
Getting insurance is a pretty simple process. Simply find an insurance provider and schedule a consultation with them. Insurance is a complicated subject which is why talking to an insurance broker can be so beneficial.
They will provide answers for your questions and determine how much coverage you will need. The amount of coverage can depend on anything from what type of goods you import or export, to where your goods are headed or how risky they are to insure.
Once you’re insured, you will need to get a license to import/export. Our article on how to get an import/export license will help you through this process.
If you export or import on a routine basis, then it is definitely worthwhile to have insurance. It might seem like a waste to spend a small and routine amount on insurance since it's unlikely that goods will be lost or even damaged every time you export or import.
However, disaster could strike at any time which is why it's always good to be prepared. Insurance is especially important if you export or import products into the country on a regular basis. The more often you move goods in and out of the U.S. the more likely something bad could happen to your goods.
An insurance broker isn’t the only thing that you will need when you start your import/export company. It's equally important to have a good customs broker to back you up.
At USA Customs Clearance, we provide all the services you need to start importing goods into the country. Our team of experts have a combined 100 plus years of experience.
Lastly, you can contact our team to get 1-on-1 import consulting and get the answers to any questions you may have before you finally start importing.