Difference between Declared Value vs. Cargo Insurance

Transportation of goods by commercial vehicles is always fraught with risks. Therefore, many shippers are self-insured that is, they take measures to pack the items to protect along the journey. As a self-protection measure sometimes a shipper may want the option to cover a recovery amount that is more than the carrier’s stated limits, should a loss occur?

The value of cargo shipment can mean any of the following:

  • The cost of the goods to the shipper.

  • The replacement cost to the shipper.

  • The various out of pocket costs to the shipper which includes freight, insurance, government fees, and taxes.

  • The price charged by the shipper to the buyer plus the profit margin anticipated by the shipper.

Therefore, there are times when a shipper who stands to undergo a loss in the face of something untoward, decides to declare the value of his goods. This is in common parlance termed as “Declared Value”.

Consider a scenario in which a shipper’s goods are valued at Rs. 200,000 and the chosen carrier has a stated maximum liability of Rs.100,000.There is a shortfall and to make up for the shortfall, the shipper can declare a value of Rs.200,000 and pay additional charges for the Rs.100,000 increase in liability.

The declared value for insurance is the value of goods as declared to the insurer by the shipper. The goods are declared at a higher value to ensure that the insurance company covers the maximum liability for the insured. The insurance company will pay according to the terms and conditions of the particular commercial vehicle insurance cover. It will take into account deductibles and limitations of liability of the insurance policy, the insured’s loss up to, but not beyond, the declared value for insurance.

For the insured, the higher the declared value, the higher the cost of the premium. Therefore, the insured party may choose, as a matter of cost-benefit and risk management analysis, to declare a value of goods below its potential loss exposure.

In declared value, though higher value can be recovered, it is important to note that exclusions, limitations, and terms of the bill of lading still apply to all cases. Moreover, in the event of a claim, the shipper needs to provide evidence that the loss was caused by the carrier. Also, an insurer must not think that declaring value necessarily means that any type of loss or damage that occurs while in the care, custody, and control of the carrier will be fully recovered.

Legal liability on the part the carrier must also be proven to avail the benefits of declared value. This is because carriers do have valid defenses with regard to cargo damage. Some of these legitimate reasons include acts outside of human control, acts of God, and insufficient packing, among others.

Regular cargo insurance is, therefore, more useful as it protects the goods against loss and damage as per the terms mentioned in the insurance policy. Moreover, there are fewer hassles involved to prove that the carrier is legally liable for the damage.