The cost of being underinsured

What carrier liability doesn’t cover — and how to fix it.

When you hand off a package to your shipping carrier, you may assume it’s covered. And technically, it is — just not as much as you’d think.

Most major carriers, including FedEx, UPS and USPS, provide a base level of liability coverage, often capped at $100 per shipment. That might be enough for a small tech accessory or simple replacement piece, but if you’re shipping consumer electronics, automotive parts or other high-value goods? It’s a risky bet.

You make careful decisions about cost-saving, whether it’s negotiating shipping rates or streamlining your logistics, but cutting corners with shipping protection could cost you more than you realize. Say you ship a $700 automotive part, and it’s lost or stolen en route. If you didn’t purchase additional coverage, the default carrier liability might only cover $100 — or in some cases, just $20 — leaving you to cover the remaining $600 or $680.

For many businesses, that $100 cap is one of the costliest blind spots in day-to-day operations. And it’s a mistake that only becomes clear after something goes wrong.

Related: The hidden risks of tech shipping

What carrier liability actually covers

Each major carrier handles coverage a little differently, but the baseline is largely the same — and it’s often misunderstood.

Many shippers assume liability coverage means full protection but in reality, it only sets a limit on what the carrier may pay if something goes wrong. That limit is often far below the value of the product being shipped and riddled with fine print that makes it harder to recover your losses.

Here’s what it looks like in practice:

FedEx and UPS both include up to $100 in declared value liability for most shipments.
USPS includes up to $100 for Priority Mail and Ground Advantage but offers no default coverage for First-Class packages.
None of these options automatically cover full replacement value unless you opt to declare a higher value — and pay for it.

Even if you pay for declared value, it’s important to note: declared value is not the same as insurance. It simply sets a liability cap and comes with no guarantee of reimbursement.

That’s because carrier liability only applies under specific conditions, with the burden falling on the shipper to prove the item’s value, condition and loss. It’s not uncommon for claims to be denied for improper packaging, missing documentation, porch theft and force majeure clauses.

Even if a claim is paid, businesses may wait weeks (or longer) for reimbursement — if they get it all. This might be acceptable for low-value goods but ultimately, carrier liability coverage alone may leave many high-value shipments significantly exposed.

Why it’s a problem for smaller businesses

Most large companies have teams and systems to review shipping claims, file disputes and manage loss proactively. But smaller businesses? They’re shipping with smaller teams and much less margin for error.

Here’s where coverage gaps can hurt:

Lost or damaged inventory takes time and money to replace.
Customer trust takes a hit, especially if you can’t offer an immediate resolution.
Refunds or reships eat into profits, especially when the value exceeds the carrier’s liability cap.
Carrier claim processing is often time-consuming and ambiguous.

Statistically, it’s not a question of whether it will happen, but when.

While most packages arrive safely, a surprising number don’t. According to Shipware, FedEx damages about 7% of packages, USPS about 10% and UPS up to 11%. Additionally, roughly 1.7 million packages are lost or stolen every day in the U.S., according to Packlane. That’s over 600 million lost packages a year — many from porch piracy, which isn’t typically covered under standard liability.

And businesses are feeling it. A 2021 UPS Capital survey found that 81% of small and mid-sized businesses had been negatively impacted by lost or delayed shipments. Among e-commerce sellers, 63% reported an increase in damaged or lost items, and 48% saw a rise in package theft. These trends are only accelerating as shipping volumes grow and networks strain under increased demand.

Meanwhile, the business often shoulders the immediate expense of reshipping or refunding just to keep the customer experience intact, long before a carrier claim is resolved (if it’s resolved at all).

How to ship smarter

Fortunately, underinsurance is one of the easiest shipping problems to solve. Adding third-party parcel insurance — like coverage from PIP — can offer peace of mind for a fraction of the shipment’s value.

Here’s how PIP bridges the gap:

Full-value coverage for loss or damage, not just capped liability.
Coverage that applies across carriers, so you don’t have to navigate different claims processes.
Faster payouts, with easier documentation and support.
Competitive rates, often lower than carrier-declared value fees.

You’ve worked hard to earn your customers’ trust; third-party insurance helps you keep it. When preserving the relationship behind every order is as important as recouping costs, insuring your packages with PIP gives you the ability to act quickly, protect your margins and keep customers confident in your business — without navigating red tape or fine print.

In an industry built on speed and service, reliable coverage is no longer a nice-to-have, it’s a competitive advantage.

Related: Understanding Parcel Insurance

When coverage is worth getting right

Shipping delays, damage and losses happen, even with top-tier carriers. But the fallout doesn’t have to rest entirely on your shoulders.

Relying on carrier liability alone is a gamble that tilts in the carrier’s favor. When the burden of proof is high and the outcome uncertain, it may be time to ask: What’s at stake if something goes wrong?

Make sure your coverage matches the value you ship. Get a quote from PIP and take the guesswork out of protection.

This material has been prepared for general informational purposes only, is intended to apply generally rather than to any specific company and presumes appropriate discretion will be exercised regarding any particular situation.