Understanding Automatic Coverage and Deductibles

Posted on Feb 5, 2022, by Chelsea Wilcots

Shipping goods comes with the inherent risk of loss or damage during transit, which is why carriers often offer automatic coverage as a protective measure. Typically, carriers provide automatic coverage up to the first $100 of the shipment value. However, many shippers choose to enhance their coverage by purchasing third-party shipping insurance for the remaining value of their shipment. Understanding the dynamics between these two insurance policies is crucial, as carriers' automatic coverage can impact the deductibles when filing a claim with a third-party insurance company.

In this article, we will delve into the concept of automatic coverage, explain how it relates to deductibles, and shed light on the implications for shippers.

Image: Note on laptop that says 'Understanding the Deductible'

Automatic Coverage: A Brief Overview

Automatic coverage, also known as carrier liability coverage, is a standard offering provided by carriers to safeguard packages during transit. It serves as a baseline insurance policy, with carriers assuming responsibility for any loss or damage that occurs while the package is in their possession. Typically, this coverage extends up to the first $100 of the shipment value, although carriers' specific terms may vary.

Deductibles in Third-Party Shipping Insurance

To enhance their coverage, many shippers opt for third-party shipping insurance. However, third-party insurance policies often include deductibles. A deductible is the out-of-pocket amount that the shipper must pay before their third-party insurance company covers the remaining costs of a claim. Interestingly, in some cases, carriers' automatic coverage can act as the deductible, effectively reducing the shipper's financial responsibility.

Interaction between Automatic Coverage and Deductibles

When filing a claim with a third-party shipping insurance company, carriers' automatic coverage typically influences the deductible amount. Here's how it works:

  1. Determining the Claim Value: Suppose the total loss or damage to the shipment amounts to $1,000. Since the carrier's automatic coverage extends up to $100, the remaining claim value is $900.
  2. Deductible Application: If the shipper's third-party insurance policy has a deductible of $100, they would need to first utilize the carrier's automatic coverage for the deductible amount ($100) before the third-party insurance company covers the remaining claim value.

In this example, the deductible is subtracted from the claim value after accounting for the carrier's automatic coverage. Consequently, the shipper would receive a reimbursement of $900 ($1,000 claim value - $100 deductible).

It's important to note that deductible amounts and policies may vary between third-party insurance providers. Shippers should carefully review their insurance policy to understand the specific terms and conditions, including the deductible requirements.

Important Considerations for Shippers

To navigate the complexities of automatic coverage and deductibles effectively, shippers should consider the following factors:

  1. Coverage Limit: Evaluate whether carriers' automatic coverage, often capped at $100, sufficiently protects your shipment. If the value of your goods exceeds this limit, additional insurance or declaring a higher value may be necessary.
  2. Cost-Benefit Analysis: Assess the potential risks and associated costs when deciding whether to purchase third-party shipping insurance. Evaluate the deductible amount and the value of your goods to determine the cost-benefit ratio of obtaining additional coverage.

In conclusion, carriers' automatic coverage provides a baseline level of protection for shipments during transit, typically up to the first $100 of the shipment value. However, shippers often choose to supplement this coverage with third-party shipping insurance. Understanding how automatic coverage and deductibles interact is crucial for shippers seeking comprehensive protection.

By grasping the interplay between carriers' automatic coverage and deductibles, shippers can make informed decisions regarding the need for additional insurance. Carefully reviewing insurance policies and considering the value and fragility of their shipments will empower shippers to select the most suitable coverage options to safeguard their goods throughout the shipping process.

We encourage you to check out our online rates to see which carriers have deductibles when purchasing from U-PIC's BUY NOW program

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