If you ask Google that question, the results on the first page will all tell you yes. Case closed, right? No.
Once you dig into these responses, you find out they come from shipping insurance companies. These companies have a vested interest in selling you their product. It’s a perfect example of: “Never ask a barber if you need a haircut.”
Does that mean you shouldn’t offer shipping insurance? Also no. Shipping insurance is a complicated thing. It has benefits and downsides. While you get peace of mind and loss mitigation as upsides, you also get higher shipping costs that might scare off customers and a higher administrative load when it comes to processing claims and refunds.
So, the better question isn’t whether to offer shipping insurance or not. The question is whether it is right (and profitable) for your business to do so.
Shipping liability policies vary from company to company
The first thing to consider before buying shipping insurance is your carrier’s liability. When it comes to damaged, lost, or misdelivered packages, UPS only covers items with a declared value of up to $100. If your items cost more than $100, you have to pay more to be covered in the event of damage or loss, i.e. you have to buy shipping insurance from UPS.
FedEx is even trickier. They don’t have a set dollar value for how much they pay out. The company first requires you to prove that it was at fault for any damage, loss, or missed delivery.
Once guilt is established, FedEx can either pay the replacement value of the missing item, the depreciated value, or the repair cost, whichever one is lower. For items like jewelry, artwork, and antiquities, FedEx has a cap on how much liability you can claim. After you prove they caused any damage or losses, of course.
So, the first step should be to carefully read your shipper’s liability policies. If you sell sub-100-dollar items and you use UPS, for example, any loss is already covered by the shipping fee you pay and you won’t need additional insurance. Only consider getting insurance for whatever your carrier doesn’t cover.
Consider splitting up large orders
You may have noticed that you could buy ten things in a single shopping session on Amazon and instead of them sending you your ten items in one neat package, you get ten separate packages delivered to your door over the course of three days.
The reason for this is that Amazon doesn’t always have all its items in a single warehouse. Because of their focus on improving shipping speed, Amazon ships you every product as soon as it is ready instead of waiting for the others and putting them all in a single package. That’s the official reason. But could there be another reason? A sneakier one?
Say, a customer orders goods worth $300 and you use UPS. Since UPS’s general liability only covers items worth $100 and less, you might consider shipping the goods as three packages of $100 instead of a single 300-dollar package. Now, implementing this strategy will depend on whether the cost of shipping three packages would be lower than shipping one package plus buying shipping insurance for it, so do the math first.
Always buy shipping insurance for items with subjective valuation
There’s a reason FedEx has a cap on liability claims for things like antiquities, art, and jewelry. Their value is highly subjective. Two identical portraits of the same dog could fetch wildly different prices depending on which artist painted them.
Since valuation for such items tends to be highly subjective, shippers will always seek to pay the lowest possible price they can get away with in the event of loss or damage. In such cases, it’s in your best interest to insure your item. The cost of insurance is also less painful at a certain scale. When an item is worth thousands of dollars, an extra hundred or two for shipping insurance is usually not a big deal for the customer.
Should you offer shipping insurance?
Shipping insurance is complicated and multifaceted and should only be considered in case there are no other options. Get as much liability coverage as you can through your carrier’s standard shipping rates. You can even ship your products with multiple carriers if that guarantees better rates.
Shipping insurance is only a must for expensive items, mostly because customers stop being price sensitive beyond a certain point. For moderately expensive products, do the math and to determine what replacing lost or damaged products costs you vs what shipping insurance would cost you.
You can also greatly reduce shipping damage by the way you pack your products. Van Moof, for example, put pictures of TVs on the boxes containing their bicycles, and shipping damage was reduced by 80%, all without costing the company an extra cent.
Another problem is package theft. You can mitigate this by scheduling deliveries for when your customers are home and making in-person delivery compulsory for the pricier items.
All these measures can go a long way in reducing shipping loss damage. It doesn’t mean they make shipping insurance unnecessary, however. You know your numbers better than anyone, so do the math. Only get shipping insurance if it saves you more money than it costs you.