Shipping Protection

Shipping Insurance vs. Shipping Protection: Which is Better For Your Business?

Aaron Sullivan
February 8, 2023

If you're an ecommerce business owner, chances are you've asked yourself at one point or another whether or not shipping insurance costs are worth it. And with all the fees and overhead associated with shipping on the continued rise, you know you have to be strategic about your costs.

The shipping process is fraught with risk. 72% of small and midsize businesses say that shipping issues like theft, loss, and damage have negatively impacted their customer reviews in the past year.

In this blog post, we'll take a look at the benefits and drawbacks of shipping insurance, as well as an alternative that works harder for your business’ bottom line.

What is shipping insurance coverage?

Shipping insurance, sometimes known as package insurance or package protection, protects plan holders in the event of theft, loss, or damage of domestic and international shipments. Coverage can include the value of the goods as well as the cost of shipping.

How much does it cost to insure packages? 

The cost to purchase shipping insurance depends on the value of the items being shipped. Businesses in the United States often work with major shipping carriers to negotiate special rates and tailor policies to specific business needs. Other businesses seek insurance coverage from third-party insurers. And in some cases, your third-party logistics company (3PL) might be able to help.

According to ShipBob, third-party providers can sometimes be less expensive than working with the major carriers. Also, most major carriers will automatically cover domestic shipments with a value of up to $100.

How does shipping insurance work?

First of all, every shipping insurance carrier is different and will have their own requirements, restrictions, and individual coverage details, so before getting too comfortable with any one option, make sure they fully cover all your highest value items.

Once you’re all set up, if a covered shipment gets lost, stolen, or damaged in transit, you’ll be able to submit a claim to your insurance carrier for reimbursement. To do so, you’ll need documentation proving the sent items’ value. 

For example, to file a claim with USPS insurance, you’ll need evidence of your insurance, evidence of the ordered item/items’ value, and proof of loss or damage, among other things.

How long does it take to process and resolve claims?

Claims processing, including the time spent to attempt lost/missing package location, can run about 7-10 days. Add on another few days before resolution and reimbursement. 

You’ll also want to know how much time you’re allotted to file claims. Each major carrier is different. For USPS insured mail, you’ll have to file the claim within 15-60 days; domestic shipments with UPS have a five-month limit; and FedEx gives you 60 days from the time of order.

Pros and cons of shipping insurance

When you're shipping high-value items, the last thing you want is for something to go wrong and the item to be lost, stolen, or damaged, but does that mean it’s worth purchasing shipping insurance?

Pro: Offsets some financial losses from lost, stolen, or damaged packages

If something happens to an uninsured shipment and the item is damaged or lost, that's money out of your pocket. When you factor in the cost of the item itself, plus the cost of shipping and handling, you could be looking at a significant loss. 

Con: Requires additional overhead from your shipping and/or customer service teams

Shipping insurance helps to mitigate the shipping costs related to lost, stolen, or damaged packages, but it still puts much of the burden on you as a merchant. You and/or your team will be on point to file claims and track them throughout the claims process, which is no small task.

While the cost-benefit analysis often comes out in favor of purchasing parcel insurance, it also adds additional overhead to your business. For high-volume merchants, it can take a whole team of people to submit every shipping insurance claim and follow it through to resolution. 

You’ll need a process for collecting the data you need to make claims. Be sure those collection requirements are socialized with your customer service team to make the process as smooth as possible for customers.

This complex workflow shows the steps needed to process an in-house shipping issue resolution program.
A standard example of the claims process for shipping insurance.

Con: Sometimes resolution never comes

Our partners at Boutique Rugs told us that, despite their team focusing heavily on claims resolution, they only saw restitution for about half of their claims. That meant absorbing the cost of replacement on half of the deliveries that experienced issues (at 5% of packages with issues, that meant they were eating the cost to replace around 2.5% of their orders each year).

Now with Shipping Protection, they’ll offset nearly half of these costs — to the tune of $1.5 million in savings annually. 

“With Extend Shipping Protection, our customers are protected and we save millions of dollars in product replacement costs,” said Ali Oner, CEO of Boutique Rugs.

Shipping insurance vs. Extend Shipping Protection: How are they different?

Modern customers are selective with the brands they buy from; they’re looking for value, convenience, and peace of mind for every purchase they make. Merchants that offer shipping protection to their customers are building trust and giving customers a reason to shop with them again. 

Extend Shipping Protection reduces complexity and allows merchants to focus on creating a delightful customer experience that builds loyalty and drives repeat purchases. Extend handles all service request intake, logistics, customer service, and replacement product costs. 

1. Faster, easier service requests and a great customer experience

Resolve issues with technology in seconds or minutes — rather than days or weeks. Once a customer files an easy digital service request (no purchase receipt required), Extend gets the ball rolling so that customer gets a replacement product ASAP.

2. Reduced costs and overhead

Any time a package goes missing, the merchant is on the hook to make it right with a replacement, and the costs quickly add up. On top of the cost of replacing lost products, merchants are also saddled with the cost of customer support and shipping issue resolution. 

Growth-minded merchants can’t afford to let these combined costs impact their bottom line. With Extend, instead of letting the cost of replacements erode your bottom line, you’ll recognize replacement products as a net-new sale. You’ll also reduce operational overhead by offloading shipping issue resolution from your own customer support to Extend. 

3. Peace of mind for you and your customers

Shipping protection takes the customer worry out of package delivery by protecting packages from loss, damage, and theft, and meeting customer expectations around promised deliveries. With Extend, customers can purchase with confidence.

How Shipping Protection can offset up to half of your shipping insurance claims

Filing an insurance claim can be a time-consuming process, especially if you don't have all of the necessary documentation. With Extend, we take care of everything for you so that you can focus on running your business. Contact us today to find out what we can do for your bottom line.

Aaron Sullivan
Aaron Sullivan is senior content marketing manager at Extend. He specializes in writing about e-commerce, finance, entertainment, and beer.

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