Shipping Insurance: Is It Worth the Cost?

What you need to know to help you decide

by staff writer
- May 22, 2008

You've no doubt heard the horror stories about packages that disappear off the face of the earth moments after being handed over the postal counter. Then there are the endless tales of shattered plasma TVs and computer monitors with tell-tale footprints and massive dents on the outer cartons.

There's no better argument in favor of buying shipping insurance than stories such as these. But what if your package isn't all that valuable? Shipping insurance can add 3 percent or more of the item's value to your costs. So is it really worth it?

To be fair, millions of packages get shipped every day, but few actually get lost. And proper packaging can prevent most damage. However, loss and damage do occur, and when they do, shipping insurance can help you recover the cost of the item.

When it comes to offering shipping insurance, there are a couple of paths you can take:

Always include insurance. Since the item is still technically your property while it's in transit, this is really the only way to fully protect your interest until the package safely arrives with the buyer.

At minimum, always add shipping insurance for items that are high-value, electronic, fragile, hard-to-find or irreplaceable

If you add insurance, you can group the expense with shipping and handling fees, or list it out separately. Either way, it's prudent to state clearly that shipping insurance is included in the item's cost. Full disclosure is always the best policy, and the fact that you care enough to insure every package will reflect well on you as a seller.

Most experts recommend you insure an item for its full fair market value, not necessarily the amount you sold it for. If something gets damaged or lost in transit, the carrier will usually only reimburse for actual replacement cost, so you don't want to under, or over, insure.

Insure only items of a certain value. One eBayer once floated a theory that packages insured for big bucks are handled with TLC, while uninsured parcels get drop-kicked, jostled and generally abused. Of course, there's no research to support this hypothesis, just anecdotal evidence. A more reasonable estimate—and a commonly cited one—is that loss or damage occurs to 1 percent to 2 percent of parcels shipped via U.S. Postal Service.

Here's a good rule of thumb: At minimum, always add shipping insurance for items that are high-value, electronic, fragile, hard-to-find or irreplaceable. Odds are, the package will arrive safe and sound at the desired destination. But with valuable merchandise, why take the risk?

For less precious commodities, you may feel like playing the odds. And that's O.K.—those odds are overwhelmingly in your favor. However, if a buyer asks you to add insurance on their dime, don't refuse just because you don't think it's necessary. You'll look like a seller who doesn't care, and they might penalize you for it with negative feedback.

Where to get insurance

Shipping insurance can be purchased at the same place you buy postage for your package, whether it's the post office or a drop-off desk for one of the major parcel services. Just tell the clerk that you want to insure the package and the value you want to insure it for. If you print labels online through PayPal or the USPS, insurance can be purchased as part of the postage. Auctiva users can purchase shipping insurance online at a significant discount, right from their Auctiva accounts.

Auctiva sellers can seamlessly insure every transaction, or just those that reach a specified price threshold, by setting auto-purchase rules in their Auctiva accounts. Different rules may be set up for domestic vs. international. Auctiva Shipping Insurance covers virtually any shipment through most major domestic and international carriers. Benefits include rates that are cheaper than those of the postal service; up to $2,500 coverage on international shipments (excluding certain restricted countries); unmatched convenience; and a simplified, online claims process.

At FedEx and UPS, coverage for up to $100 and tracking are included in the shipping fee. Protection beyond that is additional. Insurance rates charged for U.S. Mail can be found here.

Some sellers prefer to "self insure," meaning they take their chances without insurance and pay any claims out of pocket. A good strategy if you choose this approach is to set up a reserve account and deposit a small amount from each successful auction. This way, when that rare claim of damage or non-delivery does crop up, you won't incur sudden, heavy damage to your profit line.

Handling a claim

Whatever carrier or insurance you go with, hang onto all paperwork and electronic receipts in case a claim does arise. It can't hurt to snap a photo of the item in its packaging prior to shipment, and file that in a safe place as well. The claims process can take up to 45 days.

If the buyer claims the package never arrived, or the item was broken on delivery, it is up to you—the seller—to follow through and file an insurance claim, because it's you who purchased the insurance at the point of shipping (even if the buyer paid for it). In the case of damage, instruct the buyer to return the package immediately to the shipping company, not to you. Returning it to you could potentially invalidate an insurance claim—especially if the box has been opened.

But no matter what you do, don't mistake insurance as a substitute for good packaging. In fact, most carriers will reject a damage claim if an article had shoddy packaging to begin with. Be a good seller and make sure to package all your items well—insured or not.

About the Author

Auctiva staff writers constantly monitor trends and best practices of those selling on eBay and elsewhere online. They attend relevant training seminars and trade shows and regularly discuss the market with PowerSellers and other market experts.

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