What Is Cargo Insurance? Complete UK Guide 2025

Introduction

Cargo insurance is a critical safeguard for businesses that transport goods, whether domestically within the UK or internationally across borders. In 2025, with global supply chains becoming increasingly complex and vulnerable to disruption, protecting your cargo has never been more important. This comprehensive guide explains everything you need to know about cargo insurance in the UK, from basic coverage to advanced policy options.

Whether you're a small business shipping products to customers, an importer bringing goods into the country, or an exporter sending merchandise worldwide, understanding cargo insurance can save you from devastating financial losses. This guide will help you navigate the complexities of cargo insurance and make informed decisions about protecting your business assets.

What Is Cargo Insurance?

Cargo insurance is a type of commercial insurance that protects goods while they are being transported from one location to another. It covers loss or damage to cargo during transit by road, rail, sea, or air. Unlike standard business insurance or vehicle insurance, cargo insurance specifically focuses on the goods being transported rather than the vehicle or the business premises.

The policy provides financial compensation if your cargo is lost, damaged, or destroyed during transportation due to covered perils. This protection applies regardless of who is responsible for the transportation, whether you're using your own vehicles, third-party couriers, freight forwarders, or international shipping lines.

Cargo insurance is essential because carriers typically have limited liability for the goods they transport. Standard carrier liability often covers only a fraction of the actual value of your goods, leaving significant gaps in protection. Cargo insurance fills these gaps, ensuring your business doesn't suffer catastrophic losses from a single shipping incident.

Why Do You Need Cargo Insurance?

Limited Carrier Liability

Most carriers, including road hauliers, shipping lines, and airlines, operate under limited liability terms. For example, road carriers in the UK typically limit their liability to around £1,300 per tonne under the CMR Convention. If you're shipping high-value goods, this coverage is woefully inadequate. A single pallet of electronics or pharmaceuticals could be worth tens of thousands of pounds, yet you'd only recover a fraction of that value from the carrier.

Protection Against Multiple Risks

Cargo faces numerous risks during transit, including theft, accidents, fire, water damage, contamination, breakage, and natural disasters. Even with careful handling, accidents happen. A lorry collision, a warehouse fire, or severe weather can destroy your entire shipment. Cargo insurance protects against these unpredictable events.

International Trade Requirements

If you're involved in international trade, cargo insurance is often a contractual requirement. Many letters of credit and trade agreements require proof of cargo insurance before goods can be shipped or payment released. Without proper coverage, you may not be able to complete international transactions.

Business Continuity

A significant cargo loss without insurance can cripple a small or medium-sized business. The financial impact of replacing lost goods, compensating customers, and managing supply chain disruptions can be overwhelming. Cargo insurance ensures business continuity by providing the funds needed to recover from losses quickly.

Customer Confidence

Having cargo insurance demonstrates professionalism and reliability to your customers and business partners. It shows you take your obligations seriously and have contingency plans in place to fulfil orders even when problems occur.

Types of Cargo Insurance Coverage

Institute Cargo Clauses

UK cargo insurance policies typically use Institute Cargo Clauses, which are standardized terms developed by the London insurance market. There are three main levels of coverage:

Institute Cargo Clauses (A) - All Risks Coverage

This is the most comprehensive level of protection, covering loss or damage from any external cause except those specifically excluded. It provides the broadest protection for your cargo and is recommended for high-value or fragile goods. Exclusions typically include inherent vice, delay, insolvency of carriers, war, and strikes unless additional coverage is purchased.

Institute Cargo Clauses (B) - Named Perils Coverage

This mid-level coverage protects against specific named perils including fire, explosion, vessel sinking or capsizing, overturning of road vehicles, collision, discharge of cargo at a port of distress, earthquake, volcanic eruption, and general average sacrifice. It's more limited than Clause A but still provides substantial protection at a lower premium.

Institute Cargo Clauses (C) - Basic Named Perils

This is the most basic level of coverage, protecting only against major incidents such as fire, explosion, vessel sinking, overturning of vehicles, and collision. It's the most economical option but leaves significant gaps in protection. This coverage is generally only suitable for low-value, non-fragile cargo.

Open Cover Policies

For businesses that ship goods regularly, an open cover policy provides automatic coverage for all shipments within agreed parameters. You declare each shipment as it occurs, and coverage applies automatically. This eliminates the need to arrange insurance for each individual shipment, saving time and ensuring no shipments are accidentally left uninsured.

Single Transit Policies

For occasional shippers or one-off high-value shipments, single transit policies provide coverage for a specific journey. These policies are tailored to the particular cargo and route, offering flexibility for businesses with irregular shipping needs.

Annual Policies

Annual cargo insurance policies provide year-round coverage for all your shipments up to a specified limit per shipment. This is ideal for businesses with regular but variable shipping volumes, providing convenience and often better rates than single transit policies.

What Does Cargo Insurance Cover?

Physical Loss or Damage

Cargo insurance covers physical loss or damage to goods during transit from covered perils. This includes damage from accidents, handling errors, weather events, and other external causes depending on your policy level.

Theft and Pilferage

Coverage includes theft of entire shipments or partial losses from pilferage. With cargo theft increasing in the UK, particularly at service stations and unsecured parking areas, this protection is increasingly valuable.

Fire and Explosion

Damage or destruction caused by fire or explosion during transit or while temporarily stored in warehouses or terminals is covered.

Water Damage

Protection against water damage from rain, seawater, flooding, or leaking containers ensures your goods are protected from one of the most common causes of cargo damage.

Collision and Overturning

If the vehicle transporting your cargo is involved in a collision or overturns, resulting damage to your goods is covered.

Jettison and Washing Overboard

For sea freight, coverage includes cargo deliberately thrown overboard to save the vessel or cargo washed overboard by heavy seas.

General Average

In maritime shipping, if cargo is sacrificed to save the vessel and remaining cargo, all cargo owners share the loss proportionally. Cargo insurance covers your share of general average contributions.

Sue and Labour Costs

Reasonable costs incurred to minimize losses or protect cargo from further damage are covered, including emergency storage, repackaging, or forwarding costs.

What Is Not Covered by Cargo Insurance?

Inherent Vice

Damage caused by the nature of the goods themselves, such as perishable items spoiling naturally or goods deteriorating over time, is not covered.

Inadequate Packaging

Losses resulting from insufficient or inappropriate packaging are typically excluded. Proper packaging is your responsibility as the shipper.

Delay

Financial losses caused by delays in delivery, even if the delay results from a covered peril, are not covered under standard cargo insurance.

War and Strikes

Standard policies exclude losses from war, civil war, terrorism, strikes, and civil commotion. These risks can be covered through additional war and strikes clauses at extra premium.

Insolvency

Losses arising from the insolvency or financial default of carriers, warehouse operators, or other parties are excluded.

Wilful Misconduct

Losses caused by deliberate actions of the insured or their employees are not covered.

Unseaworthiness

For marine cargo, losses arising from sending goods on an unseaworthy vessel that you knew about are excluded.

Customs Rejection

Losses from goods being rejected by customs authorities or confiscated by government agencies are typically not covered.

How Much Does Cargo Insurance Cost?

Cargo insurance costs vary significantly based on multiple factors. Understanding these factors helps you budget appropriately and potentially reduce your premiums.

Value of Goods

Premiums are typically calculated as a percentage of the cargo value, usually ranging from 0.1% to 2% depending on other risk factors. High-value shipments naturally incur higher premiums in absolute terms.

Type of Goods

Fragile, perishable, hazardous, or high-theft-risk goods attract higher premiums. Electronics, pharmaceuticals, alcohol, and tobacco typically cost more to insure than bulk commodities or manufactured goods.

Mode of Transport

Sea freight generally has lower insurance rates than air freight due to lower risk of total loss. Road transport rates vary based on route security and theft risk.

Route and Destination

Shipping to high-risk regions, conflict zones, or areas with poor infrastructure increases premiums. Domestic UK shipments typically have lower rates than international routes.

Claims History

Your business's claims history significantly impacts premiums. Frequent claims result in higher rates, while a clean claims record can earn discounts.

Security Measures

Implementing security measures such as GPS tracking, secure parking, vetted drivers, and tamper-evident seals can reduce premiums.

Policy Excess

Choosing a higher excess (the amount you pay toward each claim) reduces your premium but increases your out-of-pocket costs when claims occur.

How to Make a Cargo Insurance Claim

Immediate Action

As soon as you discover loss or damage, take immediate steps to minimize further losses. Document everything with photographs and written descriptions. Notify the carrier immediately and obtain written acknowledgment of the damage.

Notify Your Insurer

Contact your insurance broker or insurer as quickly as possible, ideally within 24-48 hours. Prompt notification is often a policy requirement and helps ensure smooth claims processing.

Preserve Evidence

Keep all damaged goods, packaging materials, and documentation. Don't dispose of anything until the insurer or their surveyor has inspected the loss.

Gather Documentation

Compile all relevant documents including the insurance certificate or policy, commercial invoice, packing list, bill of lading or consignment note, delivery receipt, photographs of damage, surveyor reports, and correspondence with carriers.

Submit Your Claim

Complete the insurer's claim form thoroughly and accurately. Submit all supporting documentation. Be honest and detailed in describing the circumstances of the loss.

Cooperate with Surveyors

Insurers often appoint independent surveyors to inspect damage and verify claims. Cooperate fully with their investigations and provide access to damaged goods and documentation.

Recovery Actions

Your insurer may pursue recovery from carriers or other responsible parties. Cooperate with these subrogation efforts, as they can help keep premiums down for all policyholders.

Choosing the Right Cargo Insurance Policy

Assess Your Shipping Volume

Regular shippers benefit from open cover or annual policies, while occasional shippers may prefer single transit coverage. Evaluate your shipping frequency over the past year to determine the most cost-effective approach.

Evaluate Your Cargo Value

Calculate the typical and maximum values of your shipments. Ensure your policy limits are adequate for your highest-value shipments with some buffer for growth.

Consider Your Routes

Different routes carry different risks. International shipments, particularly to developing countries or conflict zones, require more comprehensive coverage than domestic UK shipments.

Review Coverage Levels

For high-value or fragile goods, Institute Cargo Clauses (A) all-risks coverage is usually worth the additional premium. For bulk commodities or low-value goods, Clauses (B) or (C) may be adequate.

Check Exclusions and Extensions

Carefully review policy exclusions and consider whether you need extensions for war, strikes, theft, or other specific risks relevant to your business.

Compare Insurers

Obtain quotes from multiple insurers or work with a specialist broker who can access multiple markets. Compare not just premiums but also coverage terms, claim settlement reputation, and service quality.

Work with Specialists

Cargo insurance is complex and specialized. Working with an insurance broker who specializes in marine and cargo insurance ensures you get appropriate coverage and competitive rates.

Cargo Insurance vs Freight Insurance

While often used interchangeably, cargo insurance and freight insurance have distinct meanings. Cargo insurance covers the goods being transported, protecting the owner of the goods from loss or damage. Freight insurance, on the other hand, protects the carrier's revenue if goods are lost before freight charges are paid.

As a business shipping goods, you need cargo insurance to protect your merchandise. Freight insurance is typically the concern of carriers and logistics companies protecting their income.

Legal Requirements and Regulations

In the UK, cargo insurance is not legally mandatory for domestic shipments, though it's highly advisable. However, certain situations make it effectively essential:

International Trade

Many international trade terms (Incoterms) specify which party must arrange cargo insurance. Under CIF (Cost, Insurance, and Freight) terms, the seller must provide insurance. Under FOB (Free on Board) terms, the buyer typically arranges coverage.

Contractual Requirements

Business contracts, letters of credit, and financing agreements often require proof of cargo insurance before transactions can proceed.

Professional Standards

For businesses in certain sectors, maintaining cargo insurance is considered a professional standard and may be expected by customers and partners.

Conclusion

Cargo insurance is an essential risk management tool for any UK business involved in transporting goods. With carrier liability severely limited and numerous risks threatening cargo during transit, comprehensive insurance protection is not optional but necessary for business survival and growth.

Understanding the different types of coverage, what is and isn't covered, and how to choose the right policy ensures your business is properly protected. Whether you're shipping domestically within the UK or internationally across the globe, cargo insurance provides the financial security and peace of mind needed to focus on growing your business rather than worrying about potential losses.

In 2025, with supply chains facing ongoing challenges from geopolitical tensions, climate change, and economic uncertainty, cargo insurance has never been more important. Take the time to review your current coverage or arrange appropriate protection if you're not yet insured. The cost of insurance is minimal compared to the potentially catastrophic impact of an uninsured cargo loss.

For expert advice on cargo insurance tailored to your specific business needs, contact Insure24 at 0330 127 2333 or visit www.insure24.co.uk. Our specialists can help you find comprehensive coverage at competitive rates, ensuring your goods are protected wherever they travel.

Frequently Asked Questions

Is cargo insurance mandatory in the UK?

Cargo insurance is not legally mandatory for domestic UK shipments, but it's highly recommended. For international trade, it may be required by contracts, letters of credit, or trade terms. Even when not mandatory, the limited liability of carriers makes cargo insurance essential for protecting your business.

How is cargo insurance different from courier insurance?

Courier insurance typically refers to the limited liability coverage provided by courier companies, which is often inadequate for high-value goods. Cargo insurance is comprehensive coverage you arrange independently to fully protect your goods regardless of who transports them.

Can I insure goods I'm importing into the UK?

Yes, you can and should insure goods you're importing. Cargo insurance can cover goods from the point of origin through to final delivery at your UK premises, protecting you throughout the international supply chain.

What happens if my carrier also has insurance?

Carrier insurance provides limited liability coverage that protects the carrier, not you. Your cargo insurance is primary and provides the comprehensive protection you need. If you make a claim on your cargo insurance, your insurer may then seek recovery from the carrier's insurance.

Does cargo insurance cover customs duties and taxes?

Standard cargo insurance covers the commercial value of goods but typically excludes customs duties, taxes, and fees. However, these can often be included in the insured value if specified when arranging coverage.

How quickly are cargo insurance claims paid?

Claim settlement times vary based on complexity, but straightforward claims with complete documentation can be settled within 2-4 weeks. Complex claims involving disputes or investigations may take longer.

Can I get cargo insurance for a single shipment?

Yes, single transit policies are available for one-off shipments. These are ideal for businesses that ship infrequently or for particularly high-value individual shipments requiring special coverage.

What is the maximum value I can insure?

There's no standard maximum, but very high-value shipments may require special arrangements. Most insurers can accommodate shipments worth millions of pounds with appropriate underwriting and security measures.

Does cargo insurance cover packaging costs?

Cargo insurance typically covers the commercial value of the goods themselves. Packaging costs may be included if they're part of the invoice value, but specialized packaging or crating costs may need specific coverage.

What should I do if I discover damage after delivery?

Document the damage immediately with photographs, notify your insurer within 24-48 hours, preserve all evidence, and don't dispose of damaged goods until the insurer has inspected them. Prompt action is essential for successful claims.