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How to Use Shipping Insurance for Small Business to Achieve eCommerce Success
July 10, 2025 / 5 minute read / By Nick Borowitz
Blog
Retailers who ship orders or send merchandise to other retailers know the hassles of delivery. Orders can be damaged, stolen, lost, or disappear altogether.
But have you ever thought about what happens after the fact? What happens? Does the customer get their money back? Is the retailer reimbursed for the time spent chasing down what is lost?
In most cases, the loss is chalked up to a zero or someone gets pennies back on the dollars spent in the first place. This adversely hurts the retailer’s reputation because the receiving customer will inevitably blame the retailer, even though they’re equally not at fault.
That’s where shipping insurance comes in. We’ll break it down quickly and explain why retailers and customers benefit from using it!
With package theft affecting 41% of Americans and shipping damage resulting in 85 million damaged packages arriving on doorsteps in the last 12 months, the risks to your business reputation and bottom line have never been higher.
Let’s jump in!
Shipping insurance can be thought of as a financial safety net. It protects packages during transit, covering losses due to damage, theft, or non-delivery.
Unlike the basic liability coverage that carriers like USPS, UPS, and FedEx provide (typically limited to $100), proper shipping insurance offers comprehensive protection for the full value of your goods.
This protection becomes critical for small- to medium-sized retailers when you consider that you are responsible for packages until they reach customers safely. A single lost or damaged high-value shipment can significantly impact your profit margins. In contrast, multiple incidents can damage customer trust and generate negative reviews that hurt future sales.
The responsibility for shipping insurance depends entirely on who purchases the policy, and there are several scenarios to consider:
Retailer-Purchased Insurance:
When retailers opt to insure shipments, they pay the insurance premium. They may either absorb it as a business cost or include it in shipping charges. Many merchants automatically insure orders above certain thresholds (typically $200 or more) to protect their investment.
Customer-Purchased Insurance:
Customers can add insurance at checkout through merchant platforms or carrier plugins. This optional coverage gives buyers additional claim rights beyond standard carrier liability.
Dual Coverage Options:
Both retailers and customers can insure the same package, though policies don’t typically stack—claims must be filed with one insurer first.
Coverage Type | Who Pays | Coverage Amount | Typical Use Case |
---|---|---|---|
Carrier Default | Included in shipping | Up to $100 | Low-value items |
Retailer Policy | Business absorbs cost | Full product value | High-value orders |
Customer Add-Ons | Customer pays premium | Variable coverage | Customer peace of mind |
Third-party Insurance | Retail or customer | Full retail value | Cost-conscious businesses |
Traditional carrier insurance often proves costly and restrictive. Carrier-declared value coverage can cost $0.50 to $2.70 per $100 in value, with USPS insurance ranging from $2.75 to $12.25 for goods worth up to $600. These rates quickly add up, especially for businesses shipping multiple packages daily.
Third-party providers like U-PIC offer a compelling alternative, delivering the same robust coverage at 50% to 90% less than traditional carrier insurance. These solutions provide several key advantages:
The financial impact of uninsured shipping losses extends far beyond the immediate product cost. Consider these factors:
These cumulative costs can devastate businesses shipping high-value items or operating on thin margins. Third-party insurance helps mitigate these risks while reducing overall shipping costs.
Retailers should promptly generate and send shipping details to their customers when the order is processed. When the shipping print slip prints, send the information to the customers. This demonstrates attention to detail, making customers feel safer in purchasing. Also, by having up-to-date information, retailers can show customers that they show equal interest in the order arriving at the customer’s door.
Implementing comprehensive shipping insurance requires strategic thinking about your customer base, product mix, and risk tolerance. Start by analyzing your shipping patterns—identify order values, destinations, and historical loss rates to determine where insurance provides the most significant value.
U-PIC’s technology-driven approach exemplifies how modern insurance solutions integrate seamlessly into existing workflows. Their “crawl, walk, run” methodology ensures quick implementation with minimal operational disruption. At the same time, their 30+ years of experience and partnerships with major carriers provide reliability you can trust.
Consider automation as a key factor in your insurance strategy. Manual policy purchases create bottlenecks and potential coverage gaps, while API integration ensures every qualifying shipment receives protection automatically. This approach reduces administrative burden and eliminates human error in the coverage process.
The combination of cost savings, broader coverage, and operational efficiency makes third-party shipping insurance an essential tool for growing businesses. By collaborating with proven providers like U-PIC, retailers can focus on core business growth while protecting their shipments and customer relationships.