Shipping insurance exists to protect you when incoming inventory gets lost, stolen, or damaged in transit. You might think your suppliers will cover the cost of replacement handsets, but it’s common in the used phone industry for orders to ship FOB Origin. That means that the phones you order belong to you as soon as they leave your supplier’s warehouse. If anything should happen to those phones in transit, you will be liable unless you have shipping insurance.

Larger suppliers almost always ship FOB Origin, but don’t make assumptions. You need to understand what you’re liable for with each supplier you partner with. Be sure you ask new suppliers who will be responsible for filing a claim and for replacement costs if a package gets lost, damaged, or stolen in transit so you can make informed decisions.

In this article, we answer the following questions: What is the shipping insurance for? What does shipping insurance cover? Do you actually need shipping insurance?

To Insure or Not to Insure

We’ve already discussed what is shipping insurance, so let’s look at the decision of whether to insure. Shipping insurance is protection, which means deciding to get it should be a simple cost/risk calculation. For very low value orders, insuring shipments of incoming inventory might not be worth it. Carriers like FedEx and UPS offer coverage up to $100 for free, standard. For higher value orders, you have to decide whether to insure for the full amount or just a portion of it. The decision to insure, forgo insurance, or pay for partial coverage should always be made based on data. Multiply the cost of your purchase by the historical percentage of lost, stolen, or damaged items. If the premium is less than this, you should probably insure. That said, the decision is yours, and you need to consider your overall risk tolerance. 

Choosing a Shipping Insurance Provider

The easiest way to get shipping insurance is to use your carrier’s coverage. For small shipments, this is usually the way to go. Be aware that most shipping companies don’t call what they offer “shipping insurance,” but rather “declared value liability” — and the fee you pay is called a “declared liability charge.” There is typically a maximum amount of coverage you can purchase via your carrier. For example, in our experience, FedEx will accept a maximum liability of up to $50,000 per shipment. UPS’s maximum declared value is $50,000.00 per package or $100,000.00 per pallet. Paying for declared value liability is usually less expensive and more convenient for resellers ordering small amounts of inventory, though it’s sometimes difficult to get reimbursements if you can’t prove that damage or loss was the result of carrier negligence. 

If you’re regularly scheduling large shipments, however, you’ll save money and possibly time by contacting your insurance broker and inquiring about freight insurance. With freight insurance, you’ll be reimbursed for lost or damaged shipments, regardless of whether the carrier was at fault. You also have the option of either insuring per package (so you have the flexibility to only insure certain high value packages) or getting a yearly policy that covers all the packages you send (potentially less expensive for resellers who order a lot of inventory). In both cases, you will have to consider the deductible. The lower the deductible, the higher the cost. If you end up with a very high deductible, you won’t be reimbursed for the first $X of the loss, and that means your shipping insurance may only cover catastrophic loss. 

How to File a Claim

If a package is reported damaged, lost, or stolen, the best thing you can do is start your claim ASAP. Carriers and third-party shipping insurance companies have different cut-offs. Filing as soon as possible will ensure that you don’t miss the window. When your shipment was covered by declared value liability through a carrier, follow the carrier’s claim process to the letter. You can usually find instructions for filing a claim on the carrier website. If you insured the package through a broker, ask them to give you a list of all the information that you need to provide in order to file a claim. In both cases, the minimum information you will need to provide is the tracking number, the value of the shipment, a list of IMEI numbers, and your supplier’s invoice. You may also need to provide additional information depending on your carrier or insurer.  

The bottom line is that when you ask yourself the question “Should I add shipping insurance?”, the decision will depend on your risk tolerance, your financial capabilities, and your historical experience with lost or damaged packages. Your business depends on your ability to get the inventory you need, when you need it. When that inventory goes missing or arrives damaged, this can result in a financial hit. Strictly speaking, the optimal way to calculate whether to get insurance is to measure your historical percentages of lost packages, multiply this by the value of your expected shipments, and weight this against the cost of insurance. However, not everyone has this kind of data, and if you are capital constrained, a single lost package can put severe strain on your business. If this is your situation, it might make sense to forgo short term margin to protect against a catastrophic situation. However, at the end of the day, you know your business best, so the decision is one you have to make.

Ready to start stocking up? Whether you are a retailer, wholesaler, distributor, or refurbisher, WeSellCellular can help you find the used phones you need, when you need them.

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