Air Cargo Insurance: What It Means and How It Works

What Is Air Cargo Insurance?

Air cargo insurance is a type of policy that protects a buyer or seller of goods that are being transported through the air. It reimburses the insured for items that are damaged, destroyed, or lost and, in some cases, may even offer compensation for shipment delays.

A close cousin of air cargo insurance is marine cargo insurance, which protects goods that are transported over water.

Understanding Air Cargo Insurance

Air transport has emerged as one of the quickest, safest, and most economical ways to ship goods around the world. Most air freight companies provide a minimum amount of insurance for all freight, known as carrier liability. This coverage is typically scant, however. It often consists of many exclusions, including floods, earthquakes, and natural disasters, and generally doesn't provide compensation for high-value and delicate goods.

These limitations have led many big shipping companies to seek out additional insurance to shield themselves against breakage, theft, lost merchandise, and, in some cases, the cargo not arriving in time, resulting in a consequential loss. Some insurance companies offer air cargo insurance directly, as do several freight forwarders and trade-service intermediaries.

The amount of coverage and the deductible—the money a policyholder pays for expenses before the insurance plan starts to pay out—required for air cargo insurance varies based on the goods, as well as the individual provider. Payments, known in the insurance industry as premiums, also differ and are typically calculated based on the value of the insured items, whether they are hazardous, where they are being transported, and the route that they'll take to their destination.

While individuals sometimes buy air cargo insurance, far more often companies buy it to ship their inventory to customers and distributors, both in the U.S. and around the world. Some large companies, in fact, may have one or more employees that deal solely with air cargo and other freight insurance claims.

Types of Air Cargo Insurance

Air carriers are required to have a certain level of liability insurance, but this minimum coverage is unlikely to meet the needs of most cargo shippers. There are also different types of cargo insurance, with varying levels of coverage and risk protection. Many types of partial coverages might exclude damages caused by improper packing, infestations, weather, or delivery rejection by the customer.

There are more comprehensive policies out there, though, that offer greater peace of mind. For instance, full-risk air cargo insurance typically protects against almost all types of damage or loss. Such coverage, understandably, is more expensive. It is also fairly rare and may exclude older goods or ones vulnerable to breakage, spoilage, or loss. It also may not pay out on claims arising from war, civil arrest, customs rejections, or natural disasters.

Some insurers offer contingent liability policies, too. This type of insurance might be preferable when a sales contract requires a buyer to accept goods on delivery, regardless of whether those items were damaged during transit.

There are also types of air cargo insurance that provide coverage during their entire mode of transit, which may also include ground shipping after the merchandise reaches its intended airport.

The Bottom Line

Air cargo insurance provides protection for shipments of commercial goods by air. Depending on the policy, this type of insurance may provide coverage for damage during loading and unloading, issues with customs, and delays due to weather or natural disasters.