Inventory insurance covers your products against damage, theft, and anything in between, reimbursing you for any losses.
For example, if your warehouse flooded and ruined half of your stock, you could put in an insurance claim to recoup your losses. Depending on whether your insurance covers it, your policy provider would cover the cost of replacing your lost or damaged goods.
Why merchants need inventory insurance
Inventory insurance is another business overhead, but it’s a crucial one for four reasons:
1. It balances risk
As with any insurance policy, inventory insurance protects against the risk of your products becoming damaged, lost, or stolen. It provides reassurance and business resilience that gives you confidence, protects your profits, and appeases any investors or partners in your business.
2. It covers losses
Losing one product to a clumsy accident isn’t a big deal. But if you had to replace a whole warehouse full of fire-damaged stock, you could have to use your savings, take out business loans, or even close your business. Inventory insurance protects you from business-damaging losses.
3. It protects your time and opportunity loss
Some inventory insurance policies cover loss of turnover, too, protecting your overall business profits. For example, if your water-damaged stock took you one month to replace, you’d be compensated for the loss of sales in that time.
4. It’s often required
Your fulfillment partner, business investors, suppliers, warehouse, or even your other business insurance policies may require you to hold adequate inventory insurance coverage.
And, let’s be honest, inventory insurance removes a worry from your mind, helping you sleep better at night.
How much is inventory insurance?
The cost of inventory insurance depends on a variety of factors, including:
- The inventory: The value, volume, and location.
- The level of coverage: The value, excess, and additional services.
- You: Your claim history and experience.
What to look for in inventory insurance
When shopping around for inventory insurance, there are a few main features you want to look for; Value, coverage, excess, and extras.
The value of your inventory insurance must cover the value of your inventory. Remember that this doesn’t refer to the retail value of your inventory, but the supplier cost of replacing it in your warehouse.
You want inventory insurance to cover you for all situations, such as damage or theft during shipping, storage, handling, or delivery. Keep an eye out for clauses that limit the age of your inventory or apply a depreciating value.
As with most insurance policies, you pay an excess to claim. Make sure the excess is reasonable and wouldn’t leave you significantly out of pocket. Some policies allow you to decrease the excess in return for a higher annual premium and vice versa. Think about how much you’re willing to pay yourself before relying on insurance.
Depending on your stock, location, and adverseness to risk, you might want additional coverage included, such as:
- Business interruption
- Natural disasters
- Employee theft
How to buy inventory insurance
Now let’s move on to buying your eCommerce inventory insurance, step-by-step.
1. Assess your risk
First, assess your risk to determine the level of coverage you need. This includes evaluating:
- The nature of your business and inventory
- How much inventory you keep on hand and average replenishment rate
- The value of your inventory (and whether it’s fragile)
- Your location (for example, are natural disasters common in your area?)
- Security measures (storage type, warehouse locations, security, etc.)
- Handling (how many people and services handle your inventory)
- Your insurance claim history
Your insurance provider will require this information, and it’s absolutely crucial that it’s correct. Any mistake in this information could invalidate your policy, preventing you from a successful claim.
2. Find a reputable insurance broker
You have two options when buying inventory insurance:
- Insuring directly with an insurance company
- Insuring via a broker who works with various insurance companies to find the best deal
Both methods are valid and can produce equally competitive policies. Many eCommerce sellers will enquire with both to see who can come up with the best value and coverage.
3. Compare options
Insurance policies, prices, and coverage vary significantly between providers, so it’s always a good idea to shop around and compare quotes.
Take time to read the terms, analyze the benefits, and calculate the costs (including any admin fees).
Don’t forget to read customer reviews, too. These should be readily available on the insurance provider’s website and external review sites like Trustpilot. It’s also good to read about the claim process and complaints procedure in advance to ensure there are no nasty surprises later on. For example, a policy that takes up to a year to compensate for losses is no use to a busy eCommerce store.
Tip: You might get a better insurance rate by consolidating all of your business insurances into one policy—for example, inventory, employer’s liability, professional indemnity, and public liability insurance.
4. Re-assess each year
As your business grows, your insurance needs change entirely. You could be storing more inventory, distributing among warehouses, outsourcing to a fulfillment provider, or changing your products.
It’s crucial to discuss any business changes with your insurance broker or provider to ensure your inventory policy still covers your needs. And, even if your business hasn’t changed, always shop around when your policy comes up for renewal. Many insurance companies hike up their prices for annual renewals, hoping you don’t notice!
Inventory insurance might not be the most exciting topic you read about this week, but it sure is an important one.
Take your time to understand the importance of inventory insurance, assess your needs, and find an insurance provider who gives you the exact coverage you need to protect your stock and business against damage, theft, and loss.