The eCommerce Seller's Guide to Shipping Insurance

If you’re an eCommerce seller, shipping is an integral part of operations. Once customers have ordered your products online, you’ll need to ship it to them.

With the best will in the world, and even when running a smooth operation, using the best carriers, things can still occasionally go wrong. Polling by Citizens Advice in 2020 found that 47% of British adults have had issues with parcel delivery since the initial COVID-19 lockdown of March 2020.

Products sometimes go missing and/or get damaged. Although shipping parcel insurance may sound an expense you can do without, having it reassures customers and protects you from issues during delivery.

Here, we’ll look at the benefits of shipping insurance, how it works, the different types and everything else you need to know.

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Why is Shipping Insurance Important?

To survive in the eCommerce world, customer satisfaction is important. Without positive feedback, businesses can struggle to survive. And though you may think the odds are against something going wrong during shipping, more than 5% of eCommerce shipments are damaged in transit and roughly 1% are stolen. So, the question should be, can you afford to not have shipping insurance?

Square Online users and anyone else with an eCommerce store should strongly consider seller shipping to preserve the positive outlook of your brand.

The Benefits of Shipping Insurance

There are a number of reasons sellers should consider absorbing the cost of insurance:

  1. Save money – Uninsured shipments that go missing or get damaged could lead to financial loss that outweighs the cost of insurance.
  2. Peace of mind – Running an eCommerce business can be hard work. Knowing you have insurance protection is one less thing to worry about.
  3. Avoid the burden – The responsibility of protecting the shipment moves to the insurer.
  4. Avoid theft, loss or damage costs – If any of these happen to a parcel you’ve sent, shipping insurance covers the value.
  5. Keep the customer happy (and protect your image) – Without seller insurance, if a customer has a negative experience, they may vent on social media.
  6. Easy to use – Insurance carriers have simplified the claim filing process, and some let you file a claim in one click.
  7. Increase revenue – Shipping insurance can increase customer lifetime value. And don’t forget the power of word-of-mouth marketing.

You can keep track of positive feedback, or deal directly with negative feedback quickly and directly through Square.

When Do You Need Shipping Insurance?

You need shipping insurance if you’re an eCommerce business that is shipping a delivery to a customer. The insurance protects your business from some unforeseen circumstances – for example, if the parcel is damaged in transit, goes missing or is stolen. So, if an insured package does not reach the customer, or was somehow damaged before arrival, the shipper will be reimbursed based on the declared value of the item contained in the package.

How Does Shipping Insurance Work?

If a parcel goes missing, is damaged or stolen, you’ll need to file a claim. Fill out the insurance provider’s claim form and provide proof of the loss.

Providing proof

As you will need to provide proof if the item was damaged, make sure the recipient knows your insurance provider’s requirements before they receive it. Also make clear they should keep the damaged item until the claim is paid.

If the parcel doesn’t get delivered, proof of pickup from you is usually all that is required.

To prove the value of the parcel, you would normally be expected to show a purchase price equal to or above the declared value.


Each insurance provider has specific requirements for how long you must wait before filing claims and the time limit for doing so.

If you’re due a reimbursement, the time for receiving also varies. The most efficient insurers average turnarounds of around five days.

Different Types of Shipping Insurance

There are three different shipping insurance types:

Understanding carrier insurance

Carrier insurance is provided by shipping companies. Depending on the company, they may include it as part of the delivery quote, or it could be paid for as an extra. Check with each carrier as some, like FedEx, state in their terms that they only provide declared value coverage, which is a carrier’s maximum liability in the event of the damage or loss of a package, not shipping insurance.

Understanding declared value coverage

Declared value coverage is the cost of a shipped item, as declared by the shipper and is used to limit the carrier’s liability for delays, loss or damage of parcels. It reflects the lost cost of the parcel to the business but is usually less than the customs declared value. Although it increases the financial liability for the carrier, it should not be confused with shipping insurance.

Understanding third-party insurance

The shipper assumes full responsibility for packages and will cover expenses for any refunds or replacements. Third-party insurance is popular because it reduces processing time on claims. But bear in mind that out-of-the-pocket expenses could soon add up. Some third-party insurance companies offer policies that cover valuables up to £90,000, including some that are not covered by carrier coverage.

Understanding Self-Insurance

This is used when a person or business does not take out third-party insurance and chooses to bear the risk themselves. It covers parcels sent via carriers and can offer extensive protection, with lower rates than insuring through third-party companies.

Shipping Insurance Based on Product Type

The cost of shipping insurance depends on the value of the package. Every carrier charges differently but the more valuable the item is, the more expensive the parcel will be.

For example, third-party insurance company UPakWeShipUK offers international shipping insurance that covers total loss plus loss or damage to individual items if caused by external forces such as storm-related issues.

The policy costs 2.5% of the value you put on your item, or 2% if the value is over £30,000. If your total value came to £5,000, the cost would be £5,000 x 2.5% = £125. The minimum premium/charge is £100, £250 deductible.

Shipping Insurance Based on Other Factors

It’s not just cost you need to consider when deciding on shipping insurance:

Terms and conditions

Before shipping, make sure you’ve read up on your carrier’s terms and conditions. Each company’s policy could be different, and you don’t want to put a claim in only to discover it’s stated in their terms your claim isn’t covered. For example, some companies won’t cover items considered high value.


Some companies don’t provide coverage to certain destinations. This is often because there are areas considered at higher risk of theft or damage than others. Some third-party insurers might insist on a basic level of tracking in order to insure the item.

Square Can Help You Navigate eCommerce

Square Online helps you get your eCommerce store selling online quickly and effectively. Create a professional website, list products, add photos, include product variations, set delivery rates, print shipping labels and sell on social media.