How Is Shipping Insurance Calculated?

Shipping insurance is designed to protect merchants and individuals from financial loss if a package is damaged, lost, or stolen in transit. The cost of this insurance is primarily based on the Declared Value of the goods, the chosen carrier, and the destination.

Carrier "Free" Coverage

Major domestic carriers in the United States (USPS, FedEx, and UPS) typically include up to $100 of liability coverage for free on their standard priority or expedited services. If your item is worth $100 or less, you usually do not need to purchase additional insurance. However, if your item is worth $500, you are only charged insurance on the remaining $400 of value.

Carrier vs. Third-Party Insurance

• Direct Carriers (USPS, FedEx, UPS): Carriers charge in increments of $100. Rates hover around $1.00 to $1.65 per $100 of value. Filing claims directly through carriers can sometimes be a lengthy bureaucratic process.
• Third-Party Insurers (Shipsurance, U-PIC, etc.): E-commerce platforms (like Shopify or ShipStation) often offer third-party insurance. This is usually significantly cheaper (often $0.80 per $100 or less) and claims are processed much faster. However, third-party insurance does not utilize the carrier's built-in $100 free coverage; you insure the full amount from dollar zero.

When Should You Buy Shipping Insurance?

Shipping insurance is highly recommended if the cost of replacing the item would significantly impact your business margin or personal finances. As a rule of thumb for e-commerce businesses: if your profit margin is tight and the item value is over $100, insure it. Many high-volume shippers choose to "self-insure" low-value items by simply refunding the customer out of pocket when a package is lost, rather than paying an insurance premium on every single box.