Understanding Shipping Insurance | Shipium

For high-volume shippers, many logistics challenges only arise once customer orders leave the warehouse. Shipments are vulnerable to mishandling, theft, product damage, or even loss. In fact, McKinsey reports that out of 23 billion packages delivered annually in the United States by B2C carriers,1.5% of those — roughly 345 million packages — are lost or stolen in last-mile deliveries.

These incidents put enterprise operations at risk as retailers absorb the cost of replacements, navigate overwhelmed customer support queues, and manage costly return and refund flows. Insurance coverage helps companies offset potential losses and better control the buyer experience. 

Let’s take a closer look at shipping insurance: why it’s important, what it covers, and how enterprise shippers can use it strategically to mitigate financial loss.

Key highlights:

• Shipping insurance protects you from financial loss if a shipment is delayed, lost, damaged, or stolen. 
• High-volume shippers should consider their loss rates, average order value, and delivery risk before committing to an insurance solution. 
• Enterprise teams need to evaluate coverage limits, claims process speed, and integration with existing systems to choose the right insurance option.
• Fulfillment software like Shipium minimizes avoidable shipping errors through intelligent automation and decision-making systems.

What is shipping insurance?

Shipping insurance is a service offered by carriers or third-party companies that protects a shipment’s value in case of loss, damage, or theft.

To receive coverage for a shipment, you must first opt for insurance when creating a shipping label. If the customer’s order arrives damaged, goes missing, or is stolen, you’ll need to file a claim with documentation (like tracking info, proof of value, and photos). Once approved, the insurer reimburses a portion — or the full amount — based on the declared value and policy terms.

Shipping insurance vs. carrier liability: Key differences

Carrier liability refers to the couriers’ responsibility for lost or damaged packages under their terms of service. Shipping insurance is a different service that provides expanded coverage. 

Companies like UPS or FedEx include limited liability by default, but only if the package’s value is declared. Carriers won’t cover losses caused by:

• Macro-environmental changes, like natural disasters or extreme weather events
• Inadequate wrapping and packaging
• Package theft (unless the carrier was demonstrably negligent)

That’s not the case for parcel insurance, which is a separate policy offering broader protection and faster resolutions. The carrier liability claims process is often slower and requires extensive documentation, which causes additional delays and more frustration for customers.

Why is insurance for shipping important?

Shipping insurance is important because it minimizes financial loss and protects profit margins if packages are stolen, lost, or damaged. For high-volume shippers, these incidents are far too common. According to the Package Theft Report from Security.org, at least one-quarter of Americans have had a package stolen at some point in their lives. The rise of porch pirates is a big reason why: per the same report, they stole at least 58 million packages valued at $12 billion over 2023.

When you don't get your package as promised, whether due to crime or a carrier not meeting service-level agreements (SLAs), it creates costs — from refunds to client support and item replacement. Ecommerce brands can’t pass that financial burden on to customers without damaging trust, so insurance for shipping helps offset expenses.

When do I need insurance for shipping packages?

Deciding whether you need parcel insurance is completely up to your company. Maybe you can rely solely on carriers’ liability for specific shipments. Insurance offers protection, but it also adds cost. Enterprise shippers need to run a basic risk-return analysis to evaluate scenarios before making this decision. 

Does the potential loss from damage, theft, or delay outweigh the cost of insurance? For this calculation, logistics leaders generally look at the average value of shipments, historical loss rates, and fulfillment variables like destination risk or carrier performance.

Consider getting insurance for shipping packages if you:

• Work with high-value items with little margin for loss
• Ship items to risky areas (e.g. zip codes with high theft rates or frequent delays)
• Manage international fulfillment, which has added complexity and greater risks
• Can’t afford service failures in peak season

What are the benefits of package insurance?

The benefits of package insurance go beyond financial protection. Insuring your parcels also helps you gain:

• Customer reassurance: Respond quickly with a refund or replacement and build client trust even if deliveries go wrong.

• Support for cross-border and high-risk shipments: Offset the potential cost of loss or delay when carrier performance is less predictable.

• Better control over margins: Manage delivery risk as a fixed, forecastable cost by insuring only the shipments that truly need it. This approach allows you to budget for losses upfront by paying a small, consistent fee instead of absorbing unpredictable replacement and refund costs after disruptions.

What does shipping insurance cover?

Shipping insurance coverage varies per company, but the service generally protects you from incidents that happen in transit: 

• Damage to items: Any issues caused during transit, such as crushed packaging, broken products, or water damage — assuming items were packed according to carrier or insurer requirements.

• Lost or untraceable orders: Packages that go missing during shipment prevent the carrier from confirming delivery or location — often resulting in a total loss claim.

• Tampering or unauthorized access: Incidents where a package is opened, resealed, or stolen before reaching the customer.

Any other mishandling out of your business’s control is also generally included in most insurance policies.

Parcel insurance typically does not cover:

• Damage caused by the parcel or its contents, such as leaking
• Normal wear and tear, or loss in weight or volume during transit
• Loss, damage, or expense attributed to the misconduct of the customer

Always read the fine print to know what is and isn’t covered by shipping insurance companies.

What are the types of shipping insurance?

For logistics leaders, understanding the different types of shipping insurance is key to balancing cost, risk, and customer satisfaction. The right policy protects your bottom line without overpaying for unnecessary coverage.

Types of shipping insurance include:

1. All-risk insurance: The most comprehensive form of coverage. This service protects you against nearly all external causes of loss or damage, including theft, mishandling, and breakage, provided the shipment is properly packed and documented. All-risk insurance is ideal for high-value, fragile, or sensitive goods where any level of damage could significantly impact margins or disrupt delivery efficiency.
   
   
2. Named perils insurance: This selective coverage applies only to specific risks listed in your policy — like fire, collision, or theft. It's a flexible, mid-tier option for shippers who want targeted protection without the cost of full coverage.
   
   
3. Total-loss insurance: This low-cost option only covers you in case of a complete loss, such as when a package goes missing in transit. It does not protect against partial damage. It's best suited for low-value items.

How does shipping insurance work?

Package insurance works with a straightforward process:

1. First, you declare the item’s value and purchase insurance during label creation, either through your carrier or a third-party provider
2. Then, you pay a small fee — typically based on the package’s declared value
3. If something goes wrong during delivery, you submit a claim with proof of value, shipment details, and evidence of loss or damage
4. Once approved, you receive compensation up to the declared value

Platforms like Shipium help high-volume retailers automate this process by integrating parcel insurance directly into their logistics workflows. Our technology ensures you centralize shipping decisions and streamline operations across different systems, carriers, and fulfillment nodes.

Selecting the right ecommerce shipping insurance

There isn’t one “best” shipping insurance option for all businesses. Some retailers rely on insurance offered directly by carriers, while others integrate with third-party providers for broader coverage and automation. When looking for this service, you should understand your own needs while also considering these five factors:

1. Coverage: Does the policy cover various scenarios, including porch piracy, damage, and loss? Make sure to review what’s included and excluded based on your most common risks (e.g., high-value items or fragile products).
   
   
2. Claims process: How fast and straightforward is filing and resolving a claim? Look for providers that offer digital claims portals and quick turnaround times.
   
   
3. Cost-effectiveness: How do providers compare to each other in terms of cost? Even with a volume-based contract in place, look for providers that offer flexible rules — so you can apply coverage only to shipments that meet specific criteria, like high order value or fragile SKUs.
   
   
4. Reputation: Does the provider have good customer reviews and industry recognition? Ask for references and research reviews to understand which providers deliver real support when something goes wrong.

Choosing the right ecommerce shipping insurance means getting a partner that aligns with your operational needs, risk profile, and fulfillment strategy. The right coverage should protect your business without slowing it down.

Beyond package insurance: preventing loss with Shipium’s modern fulfillment tech

Package insurance helps you recover losses, but it doesn’t prevent delays or missed SLAs from occurring in the first place. If your team files claims frequently, your shipping tech stack may lack the intelligence to avoid those issues proactively.

Shipium’s end-to-end logistics platform helps you make smarter shipping decisions before a package ever leaves the warehouse. Here’s what you can gain with our technology:

• Flexible rules engine: Centralized and flexible control over compliance, service eligibility, and business logic. 

• Optimal package choices: Streamlined cartonization with our packaging planner API to guarantee shipment protection. 

• Modern carrier selection: Data-driven decision-making to ensure the right courier carries high-risk shipments.

• AI-powered time-in-transit modeling: Predictive delivery accuracy based on real-world performance, not static SLAs.

Schedule a demo and reduce the need for shipping insurance claims by modernizing your fulfillment operations.