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What Is Shipping Insurance and Do I Need It?

Alex Selwitz

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When eCommerce businesses start shipping orders, they may add shipping insurance on every package. That’s an excellent practice for new online retailers, but you might not need to purchase that insurance (or as much coverage), depending on what you sell and how you send it. If you work with an eCommerce fulfillment partner, your 3PL can guide you on which items need insurance and how much to carry.

shipping insurance

Peace of mind and protecting your business are crucial, but you shouldn’t neglect a cost/benefit analysis of shipping insurance policies.

In this post, we look in depth at shipping insurance to understand how reimbursement can keep your business from losing money on a lost or damaged package and when paying out of pocket is more economical than buying insurance coverage.

This post was originally published October 30, 2020, and updated March 17, 2023.

What is shipping insurance?

Shipping insurance is coverage offered by major carriers that protects against possible loss or damage to a specific shipment. This insurance covers damaged, stolen, or lost packages. To receive coverage for a package that doesn’t arrive as expected, you need to file an insurance claim based on the declared value of the items. Once you go through the claims process and the carrier verifies the loss, you’ll be reimbursed for your claim.

Carriers base shipping insurance costs on the declared value of the package, with some minimum costs and coverage amounts. Carriers also set coverage and payout caps, as well as requirements that you be able to demonstrate damage occurred while in transit. Always read the fine print to know what is and isn’t covered by a particular shipping company.

Insurance for shipping almost always comes from the carriers themselves, though there are third-party options as well. It’s most common to use a third-party insurance company if you’re shipping a high-value item or moving freight that needs coverage beyond the carriers’ coverage limits.

High-volume shippers, like Red Stag Fulfillment, may be able to negotiate favorable shipping insurance rates. When you work with an order fulfillment company like RSF, you expand your options to make insurance work for your business, not against it.

Save on shipping with Red Stag Fulfillment

Shipping insurance costs by carrier

How much does shipping insurance cost? UPS and FedEx have similar shipping insurance pricing structures. The 2023 updates have brought the two in line for most small shipments and individual packages. However, there are more pricing differences for freight and at high-volume shippers (mainly due to a combination of calculations and available discounts).

USPS shipping insurance

USPS updated some of its pricing on January 22, 2023, and according to that new rate sheet, here are your likely insurance costs.

Standard MailUSPS 
Declared ValueInsurance Cost
$0.01 – $50.00$2.65
$50.01 – $100.00$3.40
$100.01 – $200.00$4.30
$200.01 – $300.00$5.65
$300.01 – $400.00$7.10
$400.01 – $500.00$8.60
$500.01 – $600.0011.50
$600.01 – $5,000.00$11.50 plus $1.75 per $100
or fraction thereof over $600 in declared value 


The Postal Service also includes up to $100 of insurance in the service price of Priority Mail Express and Priority Mail. You can buy additional insurance at the rates listed above, up to a maximum of $5,000.

FedEx shipping insurance

Starting January 2, 2023, the rates below apply to FedEx shipping insurance for U.S. express and ground and international ground packages.

Declared ValueInsurance Cost
Up to $100$0
$100.01 – $300.00$3.90
Each additional $100 in declared valueAdditional $1.30


For FedEx freight shipments, the declared value cost is $1.30 per $100 or $1.00 per pound for U.S. shipments, and $9.07 per pound for international. You’ll be charged whichever rate is higher, so insuring heavy and bulky items that aren’t high value may be costly. In that case, compare prices with third-party shipping insurance companies.

UPS shipping insurance

United Parcel Service sets a maximum declared value of $50,000, though it has a program that accepts certain items valued up to $70,000. UPS shipping insurance rates for 2023 match FedEx.

Declared ValueInsurance Cost
Up to $100$0
$100.01 – $300.00$3.90
Every additional $100 in declared value, including first $100Additional $1.30


You can get some coverage for larger shipment values — both parcel and pallet — through UPS but charges change. Typically they charge $0.013 times the declared value for these items, but there are some other calculations to consider. Another thing worth noting is that insurance for in-transit goods is available through UPS’s affiliate, the UPS Capital Insurance Agency, Inc, and not UPS directly.

Third party shipping insurance options

There are also businesses that offer third party shipping insurance. Some of the popular options to use as supplements or alternatives to the major carriers include: 

  • Shipsurance
  • Cabrella
  • Shippo

Many consumers may use third party shipping insurance for a variety of reasons including: 

  • Lower cost
  • Less hassle, fine print & caveats
  • Additional coverage
  • Special coverage

When to purchase shipping insurance

Whether to buy shipping insurance depends on a variety of factors, including the shipment value, whether it’s going via domestic or international shipping, and carrier policies. However, there are a few general guidelines to help you determine whether to purchase it.

First, the higher the item value inside, the more likely insurance is worthwhile. For high-value items, include markup to cover shipping insurance in your pricing. You can also leave it up to your customers by offering the option to add insurance at checkout for an extra fee.

The sweet spot where this protection is a good value is when it costs you less to buy insurance on each product and make claims when things are lost or damaged than it costs you simply to replace the goods.

Filing claims for lost or damaged packages

File a claim as soon as a package is reported missing or damaged by the customer. Give the carrier or your third-party insurance provider as much documentation as possible about the package, including shipping information and proof that the package left the warehouse in good condition. Many 3PLs take photos of every order before a carrier picks them up at their location, so ask your fulfillment partner for help in filing claims.

For lost or stolen items, carriers generally search within their network and try to retrieve the package. On average, they’ll ask for 10 to 14 days to search before they declare it missing. Claims are usually processed in two to three business days after that, so the process is relatively quick.

What does shipping insurance cover?

Shipping insurance can cover items that are lost, damaged, stolen, or in some cases delays, up to the value of the products in addition to the cost of shipping. This is what is expected. The big question to ask is what shipping insurance does not cover. That can depend on the carrier and the insurance purchased. For example, UPS, FedEX, and USPS do not adequate insurance on items such as packets of cash. It’s important to check the insurance policy carefully to see if there are any hidden stipulations as well. 

The best insurance is excellent fulfillment

Shipping insurance is vital for protecting high-value packages, but the best option is excellent packing to prevent problems in transit. For example, at Red Stag Fulfillment, we often ship test packages during the onboarding process to ensure that we have the optimal packing SOP for each client. Our on-time and in-full fulfillment accuracy rates lead the industry and help our clients grow their businesses.

If you’re ready to experience the difference that top-notch fulfillment can make for your eCommerce business, give Red Stag Fulfillment a call.

Discover the Red Stag Fulfillment  eCommerce shipping difference!

More about protecting your order shipments:

Shipping insurance FAQs

  • What does insurance mean in shipping?
    The major carriers automatically insure the packages they deliver up to a certain amount, usually $50 to $100. If you want insurance above that amount, you’ll pay an additional fee to the shipping carrier. If an insured package arrives damaged or gets lost in transit, you can file a claim and get reimbursement from the carrier.
  • Should you get shipping insurance?
    You should purchase insurance for packages valued at more than the default coverage, particularly for international shipping.
  • Why do I have to pay shipping insurance?
    USPS, UPS, and FedEx all set insurance rates annually. In 2023, FedEx and UPS each charge about $1.30 per $100 of declared value. USPS insurance rates are higher, starting at $2.65 for the first $50 of standard mail.
  • How do you use it?
    Shipping insurance is used to protect individual packages and freight. Manufacturers and distributors protect their supply chains by insuring cargo shipments. Online retailers protect their orders with shipping insurance. And anyone who sends a package can buy insurance to get reimbursed if their box is damaged or lost.
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