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Cargo vs. Freight Insurance: What's the Difference?

  • Author :
  • TATA AIG Team
  • Published on :
  • 11/01/2024
  • 2 min read

Goods travelling from one place to another are prone to various risks. As per the World Shipping Council (WSC) report, around 1,382 shipping containers are lost every year at sea. This leads to considerable financial loss to freight forwarders and their customers.

In case of any loss or damage to the goods, the sender will naturally seek compensation. The freight forwarder may further look to his insurer to cover the loss or damage. This is where cargo insurance and freight insurance come into the picture.

These are two common types of policies that secure parties against financial risks related to the transportation of goods. However, people often assume that cargo and freight insurance are the same. While both policies protect transported goods against damage and loss, there are ample differences between the two.

So, what exactly is the difference between cargo and freight insurance? Which one should you buy for your business?

This article will help you understand the difference between the two policies and why it is essential to buy them for every shipment your business makes.

Cargo and Freight Meaning

The word cargo usually refers to the goods transported by large vehicles like ships and planes. It does not include the amount paid for the transport of goods.

On the other hand, freight usually refers to commodities or goods transported by rail, truck, plane or ship. Freight also refers to the charges incurred by the freight forwarder or carrier for carrying the goods.

Cargo insurance and freight Insurance: A few similarities

Before we delve into the difference between cargo and freight insurance, here are a few similarities between the two policies:

  • Cargo and freight insurance are designed to protect the goods transported from one place to another from multiple risks like loss, damage, theft, fire, etc.

  • Both policies offer coverage to goods being transported domestically and internationally via land, sea, air, or any combination.

What is the difference between cargo and freight insurance?

The words cargo and freight are used interchangeably, and this is why cargo insurance and freight insurance are confused by many. While both insurance policies aim to protect goods from potential loss or damage to goods, there are key differences between them that are as follows:

Cargo Insurance vs Freight Insurance: Who is Covered?

Cargo insurance is an insurance policy that protects the sender of goods like wholesalers, manufacturers and retailers. The policy does not need any proof of error or negligence on the part of the freight forwarder to receive the payout. It offers coverage for multiple risks like accidents, bad weather, fire, theft, natural disasters or faulty loading/unloading.

Freight insurance protects the freight forwarder or the carrier who is legally responsible for losses suffered by the sender due to damage or loss of the transported goods. The claim is paid to the sender if the loss or damage is proved to be caused by the freight forwarder’s error or negligence.

Cargo Insurance vs Freight Insurance: Claim Value

The claim value in cargo insurance is determined by the commercial value of the goods. So, in case goods are lost or damaged, the sender receives the full value of the goods transported as compensation.

Under freight insurance, the claim value is usually determined based on the weight of the goods instead of the cargo’s commercial value. For instance, if 10 kg of gold is lost, the compensation will be equal to that of 10 kg of packaging material and not gold.

Cargo Insurance vs Freight Insurance: Who Pays?

Buying cargo insurance is up to the sender of the goods. Senders can also arrange for cargo insurance through the freight forwarder in some cases. Here, the freight forwarder engages with the insurance provider and arranges the policy for the sender. A cargo insurance policy considers various details like:

The point of origin and destination of the cargo

The nature of the cargo, like fragile, perishable, hazardous

The route taken by the transporter

Cargo’s size, weight and dimensions

On the other hand, freight insurance is payable by the freight forwarder to stay secure against liabilities resulting from negligence or errors. The insurance is passed on to the customer or sender when they use the service of the freight forwarder.

Freight insurance cost is usually added to the sender’s shipping quote and included in the amount he pays. The cost of a freight insurance policy depends on a few parameters, such as:

Duration of the journey

Natural forces in question

Estimated freight volume

Other terms and conditions

Cargo insurance vs freight insurance: Modes of transport covered

Cargo and freight insurance policies can be purchased for domestic and international shipments. They cover multiple modes of transport on land, air, or sea.

Cargo insurance vs freight insurance: Eligibility

Anyone who wishes to cover their goods during transportation can buy cargo insurance. Since this policy pays the total value of the goods lost or damaged, you need to convey to the insurance company the estimated value of your cargo.

A freight insurance policy can be purchased for commercial purposes. Freight forwarders or shippers engaged in the transportation of large volumes of goods can purchase this policy to stay safe against unexpected liabilities.

Wrapping Up

This was all about freight insurance vs cargo insurance. Both insurance policies are essential when it comes to the transportation of goods. Cargo insurance is designed for the sender of goods, while freight insurance covers shipping companies or freight forwarders from various risks in forwarding the shipment.

Buying these policies may seem like an additional expense, but they can be extremely beneficial during unfortunate circumstances. Hence, to remain secure against various risks your cargo is prone to, it is recommended to cover it with one of these policies.

You can buy marine insurance to protect the cargo transported through ships or other modes of transport. Marine insurance in India covers risks like loss or damage to cargo, vessels or ships. Buying adequate insurance coverage for marine cargo can help ensure the goods reach their destination safely on time.

Tata AIG provides marine insurance policies that protect your cargo against many risks along its journey, like natural disasters, piracy, or accidents.


What do you mean by freight insurance?

Freight insurance is an insurance policy that protects goods during transportation. It is payable by the freight forwarder who wants to secure himself from liabilities arising due to loss or damage to goods. The claim value in freight insurance is determined by the cargo’s weight and not its commercial value.

Is freight insurance necessary?

Buying freight insurance is not necessary. However, it is wise to cover your goods through an adequate insurance policy against various risks during transportation.

**Why do ships need insurance? **

Marine insurance is an efficient tool to protect goods transported through water, air, land, and rail. It provides financial coverage for goods that are prone to various risks like theft, damage, loss during transportation or non-delivery of the cargo.

What are the eligibility criteria for marine cargo insurance?

Marine cargo insurance can be purchased by businesses involved in transporting goods by sea. These can include manufacturers, buyers, sellers, import/export merchants, contractors, banks, and buying agents.

Who governs marine insurance in India?

The Marine Insurance Act, 1963 governs marine insurance in India. It is regulated by the Insurance Regulatory and Development Authority of India (IRDAI).

Why should I buy marine insurance?

Buying marine insurance is essential for the following reasons:

It offers liability protection

It provides protection against loss or damage

It offers you peace of mind

It offers you a competitive advantage

It offers customised coverage

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Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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