How to Insure Air Freight: Cargo Insurance Guide

Why You Should Insure Your Air Freight The experts at Private Jets Connect break down the key points below.

Air freight insurance is essential protection for every shipper. Despite the reliability of air transport, incidents do occur: handling damage, package loss, theft in transit zones, and damage from temperature or pressure variations.

Airline liability is capped by the Montreal Convention at a level often far below the actual value of goods. Without supplementary insurance, the shipper bears the financial risk of loss or damage.

This guide presents coverage types, legal frameworks, and best practices for effectively protecting your air freight.

The Legal Framework: The Montreal Convention

Convention Principles

The Montreal Convention (1999), administered by ICAO, governs the liability of international air carriers. It applies automatically to all international air freight between signatory states.

Compensation Limits

The Convention sets carrier liability at a maximum of 22 Special Drawing Rights (SDR) per kilogram of cargo, approximately EUR 27/kg. To illustrate the gap:

For any cargo valued above EUR 27/kg, the Montreal Convention covers only a fraction of the actual loss.

Liability Conditions

The carrier is presumed liable for damage occurring during air transport (from receipt to delivery). It can be exempted by proving the damage resulted from the inherent nature of the cargo, packaging deficiency, or acts of war or public authority.

Types of Cargo Insurance

All Risks Insurance

All Risks is the most comprehensive coverage. It protects against:

• Physical damage: impact, breakage, deformation, wetting
• Total loss: destruction, disappearance
• Theft: in transit, in warehouse, in customs zones
• General average: contribution in exceptional events

Standard exclusions cover inherent vice of goods, insufficient packaging, delays, economic sanctions, and acts of war.

FPA (Free of Particular Average)

FPA insurance covers only major risks: total loss, sinking, fire, collision. It does not cover partial damage or theft. Its cost is lower than All Risks but protection is limited.

Ad Valorem Insurance

The shipper can declare a higher value when handing freight to the carrier (value declaration or ad valorem surcharge). This option increases the airline’s compensation ceiling beyond the 22 SDR/kg, for an additional charge.

Specialized Insurance

Certain freight categories require tailored coverage:

• Fine art: nail-to-nail insurance covering market value
• Pharmaceuticals: temperature excursion coverage
• Dangerous goods: environmental liability insurance
• Live animals: mortality coverage and veterinary expenses

How to Subscribe to Air Freight Insurance

Through Your Forwarder or Broker

The most common approach is subscribing insurance through your freight forwarder or charter broker. Private Jets Connect offers integrated cargo insurance with coverage tailored to each cargo type.

Through an Insurance Broker

For regular shippers, a transport insurance broker can negotiate annual policies (floating policies) covering all shipments, with optimized conditions and premiums.

Directly with an Insurer

Some transport-specialized insurers (Lloyd’s of London, AXA Cargo, Zurich, Allianz) offer direct coverage for large volumes or specific risks.

How to Calculate the Insured Value

The insured value typically includes:

• The commercial value of the goods (purchase or sale price)
• The transport cost (air freight + handling)
• Customs duties and import taxes
• An expected profit margin (typically 10%)

The standard formula is: Insured value = (Goods value + Freight + Duties) x 110%

This 10% markup covers ancillary costs and lost profit in case of a claim.

Claims Procedure

Step 1: Note the Damage

Inspect the goods upon receipt. If the package shows signs of external damage, issue written reservations on the delivery receipt before signing.

Step 2: Document

Photograph damage from all angles: outer packaging, inner cushioning, damaged goods. Preserve all evidence (packaging, labels, shock indicators).

Step 3: Notify the Carrier

The Montreal Convention requires written notification to the carrier within 14 days of receipt for visible damage, and 21 days for delay. For loss, the claim must be filed within 120 days.

Step 4: File the Claim

Submit your claim to your insurer with:

• The insurance policy or certificate
• The Air Waybill (AWB)
• The commercial invoice and packing list
• Photographs of the damage
• The inspection report and reservations issued
• The estimated financial loss

Incoterms and Insurance: Who Pays What

The Incoterm chosen for the commercial transaction determines the allocation of insurance responsibilities:

• EXW: buyer insures from pickup at seller’s premises
• FCA: buyer insures from handover to carrier
• CIF / CIP: seller subscribes minimum insurance (CIF) or all risks (CIP 2020)
• DAP / DDP: seller bears risk to destination

In all cases, it is recommended to verify that coverage is sufficient and to subscribe supplementary insurance if needed.

Conclusion

Air freight insurance is a modest investment relative to the financial risk it covers. Given the Montreal Convention’s limitations, appropriate coverage protects your cargo and your cash flow against transport contingencies.

To insure your next cargo shipment with optimal coverage, contact Private Jets Connect. Our team advises on the right insurance type for your cargo and coordinates claims management when needed.

To go further, request a personalized quote from Private Jets Connect.