Covers inventory or other merchandise shipped by the seller, but not yet received and accepted by the purchaser. It is intended to protect buyers and sellers who are exposed to financial loss if this property is lost, damaged, or destroyed while off premises and in transit.

In some cases, a bond or cash deposit may even be required to obtain the release of cargo following a general average. The sales contract may obligate a seller to provide insurance to protect the buyer’s interest or its bank’s interest. Noncompliance with the contract can result in legal problems and loss of sales if the goods in transit are lost or damaged.

Understanding the terms and conditions of the insurance coverage ensures that the worst does not come to pass in a worst-case scenario.

For example, it is the terms of sale agreed to between the buyer and seller that dictates who is responsible for loss or damage to goods in transit, and when they are responsible. You may be legally obligated to provide insurance, but even if you are not legally obligated to do so, you may want to purchase insurance to protect your firm if it has a financial interest in the goods.