Any person involved in the business of importing or exporting must know something about freight insurance. In these trying economic times, businesses need insurance to provide financial security.

Freight insurance is one of the many ways of protecting a business. It offers a way of compensating businesses or individuals who have happened to suffer the misfortune of having their goods lost or damaged during transit. In simple terms, freight insurance is a contract or an agreement between an individual or a business and an insurance company wherein the insured party is awarded an indemnity in case something happens to their goods.

Importers and exporters alike face certain risks when they ship their products. An importer who has already paid for his goods will stand to lose a lot of money if the goods are lost or damaged. Likewise, an exporter who has invested an amount of money on the goods he is exporting also stands to lose money in case of an accident. Freight insurance offers them a safety net in case their goods are somehow lost or damaged at sea, land or air.

The terms of freight insurance are usually based on sales contracts. The insurance usually takes effect when the commodities involved changes hands unless clauses are added or deleted from the contract through an agreement by both parties.

Freight insurance terms usually follow the guidelines of Incoterms. Incoterms, also known as International Commerce Terms, are a set of sales terms that are considered to be the industry standard in many countries. These terms are often referred to when dividing the responsibilities and transaction costs between the sellers and buyers involved in a particular transaction. These terms are also guided by the U.N. Convention on Contracts for the International Sale of Goods. Incoterms also set the conditions on where the responsibilities and obligations of all parties involved begin and end. These terms are all described in full in documents that can be acquired from the ICC.

For example, if an exporter agrees to a contract that is based in C&F of FOB terms as described by the Incoterms, the exporter shoulders all insurance costs up until the point where the goods are safely on board the chosen transport vehicles. From that point onward, the importer then shoulders the risk of the goods being lost or damaged.

There are many other different kinds of freight insurance terms and a healthy understanding of the shipping process will help businesses and individual avoid losing money over shipping mishaps. Proper planning, research and an understanding of logistics can go a long way when dealing with freight insurance policies.

Paul writes for the Wales Freight company and about Cardiff Shipping company.

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