Shipping Insurance: When It's Worth It and When It's a Waste

The Insurance Dilemma

Every e-commerce seller faces this question eventually: should I insure my packages? The answer is never a simple yes or no. Insuring every shipment eats into your margins. Never insuring means one lost $400 package wipes out the profit from your last 50 sales. The real answer lives somewhere in the middle, and it requires some actual math — not guesswork.

Let me walk you through how to think about shipping insurance like a business decision, not a gut feeling.

What's Already Included (Free)

Before you buy any insurance, know what you already get:

USPS: Includes up to $100 of insurance on Priority Mail and Priority Mail Express. Ground Advantage packages have no included coverage — if it's lost, you're out of luck unless you purchased additional insurance.

UPS: Includes $100 of declared value coverage on all domestic shipments. This isn't technically "insurance" — it's carrier liability — but it functions the same way. You can file a claim for loss or damage up to $100 at no extra cost.

FedEx: Also includes $100 of declared value coverage on domestic shipments. Same deal as UPS.

DHL: Coverage varies by service level, but DHL eCommerce shipments within the US generally don't include built-in coverage. Check your specific service terms.

So if you're shipping items worth under $100 via USPS Priority, UPS, or FedEx, you already have basic protection included in your shipping cost. That's a big deal — it means the insurance question only really kicks in for items above $100 in value, or for USPS Ground Advantage shipments with no included coverage.

Third-Party Insurance Options

Carrier insurance (buying extra coverage directly from USPS, UPS, or FedEx) works but it's usually the most expensive option. Third-party insurance providers offer the same coverage at 40-60% less.

Shipsurance (through ShipStation): Integrated directly into ShipStation's label creation flow. Rates start around $1.00 per $100 of coverage. Claims are filed through ShipStation's dashboard, which is convenient if you're already using the platform.

InsureShip: Works with most shipping platforms. Coverage typically runs $0.80-$1.50 per $100 of declared value. They've been around since 2004 and have a solid track record for paying claims.

Route: A different model — Route lets your customers pay for shipping insurance at checkout. The customer sees a small fee (usually $1-3) and can opt in. If the package is lost or damaged, Route handles the claim and either refunds or reshships. You don't pay anything as the seller.

Pirate Ship: Their Simple Rate service includes built-in insurance on many shipments. If you're already using Pirate Ship for USPS and UPS labels, check whether your chosen service includes coverage before buying additional insurance.

Cost Comparison for a $200 Item

Third-party insurance saves roughly 40-50% over carrier insurance. And the Route model shifts the cost entirely to the customer — which is why it's become so popular with DTC brands.

The Self-Insurance Math

Here's where most experienced sellers land: self-insurance. Instead of paying an insurance company, you set aside a small percentage of each shipment's value into a reserve fund. When a package gets lost or damaged, you pay out of that fund.

The math works like this:

Step 1: Know your loss rate. Track your lost and damaged packages over a 6-month period. For most domestic e-commerce sellers, the loss rate is 1-2% of shipments. Let's say yours is 1.5%.

Step 2: Calculate your average claim value. If your average order value is $45, and 1.5% of packages are lost, your expected loss per 100 shipments is: 1.5 x $45 = $67.50. That's $0.675 per shipment.

Step 3: Compare to insurance cost. If insurance costs $1.50 per shipment, you'd spend $150 per 100 shipments on insurance versus an expected loss of $67.50. Self-insurance saves you $82.50 per 100 shipments — almost half.

Step 4: Build a reserve. Set aside $0.75-$1.00 per shipment into a "shipping claims" fund. This covers your expected losses with a buffer. After a few months, the fund grows enough to handle the occasional expensive claim.

Self-insurance works best when:

• You ship high volume (200+ orders/month)
• Your average order value is under $100
• Your loss rate is under 2%
• You sell non-fragile items

Self-insurance is risky when:

• You ship expensive, fragile items
• Your volume is low (a single loss hurts disproportionately)
• You ship to high-theft areas or internationally

When to Always Insure

Some shipments should be insured every single time, no exceptions:

Items over $200: The included $100 carrier coverage isn't enough, and a single loss at this price point can hurt. Third-party insurance at $2-3 per shipment is cheap protection.

Fragile items: Glassware, ceramics, electronics, framed art — anything where damage is more likely than loss. Your packaging can only do so much. Even well-packed items sometimes arrive shattered after a conveyor belt mishap.

High-theft categories: Electronics, designer goods, sneakers, and other resellable items are targeted by porch pirates and occasionally by sticky-fingered handlers. If you sell $300 headphones or limited-edition shoes, insure them.

International shipments: Customs, longer transit times, and more handling points all increase the risk of loss or damage. International loss rates can be 3-5x higher than domestic.

Holiday season shipments: November through January sees the highest package volumes and the highest loss/damage rates. Consider insuring shipments during peak season even if you self-insure the rest of the year.

Filing Claims That Actually Get Paid

Insurance is only as good as the claim process. Here's how to file claims that don't get denied:

Document everything before shipping:

• Photograph the item and the packaging before sealing the box
• Keep receipts or invoices showing the item's value
• Save screenshots of the order details
• Use packaging that meets carrier requirements (this matters — carriers deny claims for "insufficient packaging")

For lost packages:

• Wait the full required period before filing (USPS: 15 days domestic / 45 days international; UPS: 24 hours after expected delivery; FedEx: 24 hours after expected delivery)
• Have the tracking number, ship date, and delivery address ready
• File within the deadline (USPS: 60 days; UPS: 60 days; FedEx: 60 days from ship date)

For damaged packages:

• Keep the original packaging and damaged item — carriers may want to inspect them
• Take photos of the damage from multiple angles
• File immediately; don't wait
• Get a statement from the recipient describing the damage

Common reasons claims get denied:

• Insufficient packaging (the #1 reason)
• Filing past the deadline
• Can't prove the item's value
• Missing documentation
• Package was marked "delivered" (for lost claims, this makes things much harder)

The Route Model: Letting Customers Choose

Route and similar services (like Navidium and ShipAid) deserve special attention because they flip the insurance equation entirely. Instead of you paying for insurance, your customer sees an option at checkout:

"Add Route Package Protection for $2.49"

About 50-65% of customers opt in, according to Route's published data. When they do, you're completely off the hook for lost or damaged packages — Route handles the claim, communicates with the customer, and issues a replacement or refund through their own system.

The benefit isn't just financial. It also removes a major source of customer frustration from your support queue. Instead of arguing with you about a lost package, the customer deals with Route's team, and your brand stays clean.

The downside? You're adding friction and cost to your checkout. Some conversion rate optimizers argue that any extra cost shown at checkout increases abandonment. It's a valid concern — test it with your own audience and watch your conversion data.

Your Insurance Strategy

Here's a practical framework:

1. Under $100 and non-fragile: Skip insurance. Use carriers with included coverage (USPS Priority, UPS, FedEx). Self-insure by setting aside $0.75 per shipment.
2. $100-$200: Consider third-party insurance on a case-by-case basis. Always insure if the item is fragile or in a high-theft category.
3. Over $200: Always insure with third-party coverage. The $2-3 cost is negligible relative to the risk.
4. Any value, customer-facing DTC brand: Implement Route or similar checkout insurance. Let customers decide, and remove yourself from the claims process.

Run the numbers for your specific business. Track your losses for 3-6 months, calculate your actual loss rate, and compare the cost of insurance versus self-insurance. The right answer is different for a seller shipping $12 phone cases than for one shipping $500 espresso machines. Do the math, and the decision makes itself.