You may also be interested in these guides: When to Buy Shipping Insurance Part One – The Buyer’s Perspective and The Perils of International Shipping With eBay and Paypal – A Guide to Successful Shipping Practices
Many sellers have a disclaimer in their listing stating something to the effect of, “Not responsible for lost or damaged items if buyer does not pay for shipping insurance.” As I explained in Part 1, this statement is entirely false. The seller is responsible for delivering the item to the buyer as described in the listing. Period. No clause or fine print will get a seller out of this responsibility. If the buyer receives an item that is not described accurately, they can open a dispute with Paypal or the credit card they used to make payment. The buyer will win and the seller will be forced to issue a full refund. The seller can point to their “Not Responsible” clause all they want. It doesn’t matter. It is not the buyer’s responsibility to ensure that the seller packaged the item properly nor is it their responsibility to ensure that the seller described the item accurately. Paypal does not care when the damage occurred, only that it is damaged and the buyer did not receive the item that was advertised. This being said, many sellers will try to convince buyers that because they have the “Not Responsible” clause, they are actually not responsible. Many times the buyer will believe them and not take the issue up with Paypal or their credit card. My point is not to argue the ethics or morals of “how a good seller acts,” only to point out that if the buyer receives an item that is not as advertised, it does not matter if they purchased shipping insurance or any other additional shipping service. If the buyer is familiar with their rights, and more importantly how Paypal works, they will file a claim against the seller, receive a refund, and most likely leave terrible feedback and Detailed Seller Ratings.
So when should a seller pay for shipping insurance? Unfortunately, at least when purchasing first party insurance from the carrier, the answer is likely never. Here are some reasons why. First, it is nearly impossible to get USPS, UPS, DHL, or similar companies to grant an insurance claim. USPS can deny a claim based on “insufficient packaging.” Their argument is that any item that is damaged during transit was insufficiently packaged by definition. After all, if the item was packaged properly then it would not have been damaged would it? Second, USPS insurance does not cover “shock” to the package. This means that if the item is dropped, but the packaging still looks intact, insurance will not cover it. So forget collecting on that laptop that was dropped repeatedly during transit and won’t turn on. For a complete list of what does not qualify, check out USPS Nonpayable Claims There is an appeals process for denied claims, but your odds certainly don’t improve at that point. Third, USPS recently announced that as of May 11, 2009 all claims will be decided by a centrally located division in Missouri called “Accounting Services,” instead of at your local Post Office. A cynical person might assume that USPS is doing this because too many local Post Offices were being lenient with granting claims. Don’t be fooled. USPS lost nearly 3 billion dollars last year and they’re doing everything in their power to trim costs, including weaseling out of paying your $1,000 laptop claim by any means necessary. Have you heard about people having difficulties collecting on warranties purchased at stores like Best Buy? Heard about dying people getting denied heart transplants by their health insurance? Cakewalk in comparison. As of May 11, USPS no longer even requires you to bring the packaging or the item to the Post Office when submitting the claim, probably because they expect to deny your claim long before that even becomes an issue. They reserve the right to inspect and impound the item and packaging at some point, and they certainly would before they consider granting your claim, but you could claim victory if you even make it that far.
Now that I feel a little better, let’s consider third party insurance. Third party insurance is available from companies like Shipsurance and U-Pic . These companies insure your packages just like USPS or UPS does. On top of that, they do so at a discounted rate. The general consensus is that you have a much better chance collecting from third party insurers, so they may be your best bet if you have a need to insure your items. You can view the introductory claims form from U-Pic here: U-Pic Claim and Shipsurance here: Shipsurance Claims Forms so you can prepare for what will be necessary in case you do need to file a claim. Also, make sure you are familiar with the terms and conditions like the ones from Shipsurance available here Shipsurance Terms Note that like with USPS, they can deny your claim based on insufficient packaging as well as “Mechanical and Electrical Derangement” which basically amounts to the Postal Service’s “shock” exclusion explained earlier. There are also various other downsides to third party insurance. The first is that there is no indication on the packaging or shipping label that the item is actually insured by the third party. Buyers who pay for insurance may question whether or not insurance was actually purchased or if their $2 was a waste of money. If a seller requires shipping insurance and the amount exceeds a couple dollars, they can expect to receive some complaints from buyers who are unfamiliar with how third party insurance works. Shipsurance provides printable inserts that state the package is insured, but even that may not stop the wrath of the dreaded crazy eBay buyer. Second, keeping track of all of the insurance information can be a serious hassle if a seller ships in volume. If a seller takes packages to the post office to be weighed and mailed, they will also have to manually enter that information online at their respective insurance website. Shipsurance offers a program to make it much easier when printing labels online so I recommend integrating that if possible. If you insist on insuring packages, seriously consider changing to a third party insurer.
I should make an important point here. Third party insurance companies would not exist if USPS or other carriers lost and damaged items routinely. It is rare for an item to be damaged by carrier negligence that would constitute a grantable claim, which is why insurers can offer $1000 worth of insurance for $10 or less. If they expected to pay out more than 1% of these claims they would lose money. Like I explained in my Delivery Confirmation guide, I have only lost one package out of more than 50,000 shipped via USPS Priority Mail with Delivery Confirmation. As a seller, you have to decide whether paying for shipping insurance is an economical choice and understand that in the long run the insurer always wins.
Finally, let’s consider what happens if the buyer claims that the item they received was damaged and the seller wants to file an insurance claim. First, the seller will have to have the full cooperation of the buyer to fill out the required affidavit that the item was received damaged. Considering the difficulties in getting many buyers to leave feedback or reply to even the most basic email, it may be difficult to relay all of the appropriate information to the buyer and have them complete it correctly. USPS can deny claims if “The sender or addressee failed to cooperate in the completion of required claim forms.” As the seller, you will have limited control over the claims process. Second, the buyer will have to hold on to the packaging and the damaged item through the insurance claims process, which may take several weeks. With USPS, if the buyer returns the item to the seller it will likely invalidate the insurance claim as USPS will argue that there is no proof that the damage was not caused by return shipping. This puts the seller in a difficult position. Buyers who understand that they can receive a refund from Paypal will likely demand one long before the insurance claim is decided. If the seller provides this refund, then the buyer will have even less reason to deal with the complicated insurance claims process. In addition, whoever files the insurance claim will have to provide proof that the item is worth the amount declared, along with proof of insurance, and proof of damage. The buyer will not have access to this information, so the seller will either have to send it to the buyer or try to submit the documentation themselves. There are a great number of problems associated with filing insurance claims. The process is meant to be difficult and frustrating because the insurer does not want to pay the claim. The absolute last thing USPS or any other insurer wants to do is grant an insurance claim for a large amount of money and they will do anything and everything in their power to see to it that your claim is denied.
Like with all insurances, shipping insurance is meant to be profitable for the insurer. To be profitable, the insurer must deny as many claims as possible. This makes shipping insurance an unattractive investment. If you do ship items that require insurance, consider a reputable third party insurer like Shipsurance. They are both cheaper than the carriers and more likely to pay out if damage or loss occurs.
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