Entrepreneurs and small business owners are known for their willingness to take risks and doing whatever it takes to build their business. When it comes to international insurance, however, risk-taking might not be the best choice. All it takes is one catastrophe to make you regret not investing in insurance for your shipments.
Insurance for your import-export business comes in a variety of different forms, and it can be difficult to choose which types of insurance are necessary for your company. There are risks that come with not having international insurance. Here are the benefits of different types of import-export insurance and additional precautions you can take to protect your shipments.
Do You Need Import Export Insurance?
In the import-export business, your goods have a long journey from the supplier to your doorstep. A lot can happen along the way, no matter which shipping method you choose: air freight or sea courier.
Here are some of the potential hardships your shipments can face during transit:
- Your goods are stolen en route
- Your goods are damaged during handling
- Your goods damage someone else’s goods
- Your goods are damaged by a fire or storm
- Your employees are injured while transporting your goods
These are just a few of the scenarios when insurance comes in handy for your import-export business. Frankly, you never know what could happen with international shipments.
Do you need import-export insurance? The short answer is yes–unless you’re willing to risk your entire investment and can cover your losses if something happens. No matter how big or small your import-export business is, you can benefit from the peace of mind that comes from having international insurance.
What if your supplier or buyer already purchased insurance? Investigate and check whether the policy is reliable. If you feel unsettled about it, you can buy a contingent policy for about half the price of regular insurance. That way, your goods are safely insured in case of a disaster.
6 Types of Insurance for Your Import Export Business
Once you’ve accepted the necessity of import-export insurance, it’s time to decide which type of insurance is most suitable for your company.
There are six kinds of international insurance you should consider. Remember, the more you invest in insurance, the safer your business will be.
1. Cargo Insurance
If you’re going to choose just one insurance plan for your import-export business, consider this one. Cargo insurance typically covers your goods from the time they leave the supplier to the moment they reach the buyer. You’re protected from most calamities with cargo all-risk insurance.
Also known as marine insurance, cargo insurance is typically about 1% of the insured value. You can purchase cargo insurance directly from your freight forwarder or air courier. Once your business is big enough, you can invest in your own blanket policy that covers everything you ship for the duration of one year.
2. Export Credit Insurance
This insurance plan is designed specifically for small and medium-sized export businesses. Export credit insurance protects you if your buyer refuses to pay you for political or commercial reasons. This is especially helpful for new companies who are hesitant to enter the international market due to fear of failure.
Export credit insurance costs anywhere from 0.5% to 2% of the invoice value, depending on risk exposure. You can obtain export credit insurance from an insurance broker such as Export Development Canada (EDC).
3. Political Risk Insurance
This type of insurance is intended for importers and exporters working with emerging economies. Political risk insurance is a safeguard against issues that result from political instability or discrimination. It’s especially important since emerging economies tend to offer great trade markets but can be often overlooked due to risk.
The cost of political risk insurance varies by country. Contact an insurance broker such as AIG Canada for pricing details.
4. International Product Liability Insurance
This coverage is specifically for your products as an exporter. It shields you in the event of product liability claims lawsuits. We recommend this insurance for every exporter, even if your products are seemingly harmless. After all, you don’t want to go bankrupt due to a claim that the jewelry you export is made with toxic glue.
International product liability insurance pricing depends on the country where the products are sold and the potential liability hazards of the products. Reach out to an insurance broker such as AIG Canada for a quote.
5. Foreign Exchange Risk Insurance
This insurance policy is meant to mitigate against the potential losses from changes in currency rates. It’s particularly useful since there’s no way to predict whether a currency will remain stable, and even a slight change can result in a huge loss for import-export companies.
The cost of foreign exchange risk insurance varies from 0.7% to 1% of the insured contract value, depending on which currencies need to be insured. You can purchase foreign exchange risk insurance from an insurance broker such as EDC.
6. Workers’ Compensation Insurance
As soon as your business grows to the point of hiring employees, you’ll probably need to purchase workers’ compensation insurance. This coverage protects your employees in the event of an accident or injury.
Whether or not you are legally obligated to obtain workers’ compensation insurance depends on your province. Consult your insurance agent for specific requirements and pricing details.
Further Precautions to Take to Protect Your Shipments
Regardless of which kinds of insurance you choose to invest in, it’s beneficial for you to do everything in your power to protect your shipments from harm. It’s better to avoid a potential problem than to have to deal with the hassle of filing for reimbursement from the insurance company.
Here are some additional precautions you can take to give your goods the best chance of arriving safely:
- Use protective packaging. Your goods need to be safeguarded from forklifts, mold, humidity, and other potential hazards.
- Waterproof everything. You never know what kind of weather your goods will be subject to throughout the journey, so it’s best to use waterproof lining and packaging whenever possible.
- Don’t use trademarks or content descriptions. Knowing a package contains valuable items might tempt a thief along the way.
It’s important to prepare for every situation by purchasing the right insurance and taking steps to protect your goods. If your shipment goes overboard or another catastrophe befalls your goods, you’ll be covered. Better to be safe than sorry!
One of the best things you can do to give yourself peace of mind when it comes to your international shipments is to find a customs broker to take care of everything at the border for you. That’s where BorderBuddy comes in. We’re equipped to handle customs solutions for your business, whether big or small. Give us a call today.