Is your checkout protection fee actually insurance?
Many “shipping protection” widgets may be unlicensed insurance. When you charge a customer a fee in exchange for replacing, refunding or covering a lost or damaged package, regulators may treat it as insurance, no matter what you call it.
- Insurance-based program
- Licensed provider, per InsureShip
- Documents available on request
Cannot verify it? You may be carrying the risk.
Who carries the risk?
- Vendor sells the widget
- You charge the fee
- Regulators look at you
Illustrative checklist, not a legal audit.
The short answer
What is unlicensed shipping protection?
Unlicensed shipping protection is a checkout “shipping protection” or “package protection” fee that works like insurance but may not be backed by licensed carriers or a compliant policy structure. Regulators can treat it as unlicensed insurance, and the merchant who charged the fee may carry the liability.
If you charge customers any optional protection fee, there is a real chance you are already selling insurance. Read the shipping insurance FAQ or jump to what to ask your provider.
The insurance test
Are you already selling insurance without knowing it?
Insurance is defined by what a product does, not by what it is called.
A customer pays a fee
An optional “protection,” “guarantee” or “assurance” charge is added at checkout.
You promise to cover a loss
Replace, refund or otherwise cover a package that is lost, stolen or damaged.
It may be regulated as insurance
Whatever you call it. Not every provider holds the licenses and carrier backing that requires.
Calling a program “package protection” does not, by itself, change how regulators may view it. Review your checkout offer with qualified legal counsel.
The consequences
The consequences of unlicensed insurance can be real and are growing.
Penalties and enforcement vary by state and circumstance. These are the risks merchants should understand.
Civil fines
Penalties that can reach thousands of dollars per policy sold, depending on the state.
Criminal liability
Potential criminal exposure for unlicensed insurance activity, depending on the state.
Class-action lawsuits
Customer class actions over protection fees that were undisclosed or unlicensed.
Forced refunds
Refunds to every affected customer who paid the protection fee.
Processor action
Merchant account shutdowns and payment processor bans.
State investigations
Inquiries by state Departments of Insurance.
Loss of authority
Possible loss of business licenses or operating authority.
Not sure where you stand?
Check your provider against the two-document test.
Your name is on the checkout
You are responsible, not your vendor.
Your vendor’s licensing problems can become your legal liability. If the provider behind your “shipping protection” is not properly licensed, regulators, payment processors and customers may look to the merchant who charged the fee.
Providers can change structure, rebrand or leave the market. Your exposure for the fees you already collected does not leave with them.
Due diligence
Ask every provider for two documents.
If you are using a competitor’s program right now, ask them for both. Actual documents, not marketing statements.
The name of the insurance company and its rating
Ask which insurer underwrites the coverage, then confirm its rating with AM Best.
Proof of active insurance licenses in all 50 states
Not claims. Not marketing statements. Actual licenses.
Also confirm before you keep charging the fee
Side by side
Unlicensed “protection” fees vs. a licensed insurance program
What to look for when you compare what is running in your checkout.
| Category | Unlicensed “protection” fee | Licensed insurance program |
|---|---|---|
| Legal structure | A fee for covering loss or damage without clear insurance backing. | Insurance-based program with policy terms and carrier backing. |
| Licensing | May be unable to show active licenses for the states where you sell. | Provider can supply license documentation on request. |
| Carrier backing | Replacements may be funded directly by the merchant or vendor. | Coverage backed by a named insurance company whose rating you can confirm with AM Best. |
| Claims | Discretionary, improvised or dependent on your support team. | Defined submission and review process under written terms. |
| Merchant exposure | The merchant may carry regulatory and financial liability. | Using a licensed provider can reduce compliance risk. Review with your counsel. |
How it is built
The four ways shipping protection is built
Every checkout add-on works in one of four ways. Find out which one is in your checkout by asking: who is insured, who pays the claim, and who regulates how the claim is decided?
Model 1
Licensed shipping insurance
Coverage is sold as insurance by a licensed agency or insurer under a written policy. The merchant or shopper is the insured.
- Who pays claims
- An insurance carrier, under policy terms
- Oversight
- State insurance law and the Department of Insurance
Model 2
Insurance-backed protection
The provider buys a cargo policy for itself and offers “protection” to shoppers. The provider’s terms say the shopper is not an insured.
- Who pays claims
- The provider, with its own policy behind it
- Oversight
- Depends on the provider’s licenses and terms
Model 3
Provider-affiliated insurer
The provider names its own insurance affiliate, sometimes alongside a third-party carrier, depending on the state and product.
- Who pays claims
- The provider or its affiliate
- Oversight
- Depends on where the affiliate is licensed or admitted
Model 4
“Not insurance” / merchant-funded
The provider’s own terms say the product is not insurance. Fees typically fund claims. Depending on the program, the merchant or the provider decides and pays claims.
- Who pays claims
- The merchant or the provider, depending on the program
- Oversight
- No insurance policy for the shopper to rely on
Why the model matters: in Models 2 to 4 the shopper paying the fee usually has no policy of their own. In some Model 4 programs, your store is the one making the promise and paying the claims. Whether a particular product is insurance is decided by state law and regulators. Want to see how specific providers describe their own structure? Compare how providers structure their coverage. In a general consumer alert that names no company, the Utah Insurance Department said: “Legitimate shipping coverage providers will be licensed as insurance companies or insurance agents.”
Read the fine print
When “not insurance” means your store is the insurer
Some apps describe their product as not insurance. In the typical version of this model, your store charges the fee, funds the claims, often decides them too, and keeps whatever is left.
That can look like extra margin. But the customer paid a fee for a promise to cover a loss, and the only party standing behind that promise is your store. Whether that makes it insurance is decided by state law and regulators, based on what the product does. Regulators have issued general consumer alerts about unlicensed package protection; those alerts name no company.
Merchant-funded app
- No insurance policy behind the fee
- Your store decides and pays claims
- Fee pool is your only reserve
- No insurer for the shopper to rely on
Licensed insurance
- Written policy with a named insurer
- Claims decided under policy terms
- Carrier pays approved claims
- Regulated by state insurance law
“Legitimate shipping coverage providers will be licensed as insurance companies or insurance agents.”
Utah Insurance Department, consumer alert (March 2024)The NAIC has issued a national consumer alert about package protection.
National Association of Insurance Commissioners, consumer alert (July 2024)Provider scorecard
10 questions to ask any shipping protection provider
Send this list to your current provider, and to us. A licensed program can answer every question in writing.
| Ask | What a good answer looks like | Warning sign |
|---|---|---|
| 1Is this sold as insurance? | Yes, under a written policy or certificate | Terms say “not insurance” |
| 2Who is the insurance carrier? | A named insurer you can look up | “Our partners” or no name at all |
| 3Who is the insured? | You or your customer | No one can say who the insured is |
| 4Which licensed entity sells it? | Legal name plus license numbers or NPN | A software company with no license listed |
| 5Is the insurer admitted in my states? | A clear yes, or a disclosed surplus-lines placement | They don’t know or won’t say |
| 6What is the carrier’s financial strength rating? | A rating you can confirm with AM Best | “A-rated” with no carrier name |
| 7Who decides claims, under what terms? | Written claim terms, limits and exclusions | No written claim terms |
| 8Where does the fee go? | A disclosed premium, with any compensation explained | Fees pooled to pay claims with no insurer behind them |
| 9Is the offer opt-in and clearly disclosed? | Shopper chooses it, and the terms are linked | Pre-checked by default |
| 10Will you put all of this in writing? | Policy reference, certificate and license proof | Marketing pages instead of documents |
Switching to InsureShip
How to switch to licensed shipping insurance
Switching providers takes a few days, not a rebuild. Here is the order we recommend.
-
Audit your checkout
Screenshot the offer, save the current terms, and note the fee, the default setting and any revenue share.
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Ask the 10 questions
Send your current provider the scorecard above and keep their written answers on file.
-
Request our documents
Ask InsureShip for the same proof: licensing, policy and carrier documents, for you and your counsel to review.
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Connect InsureShip
We integrate with Shopify, WooCommerce, Checkout Champ, Konnektive, Sticky and more, plus a custom API.
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Update your checkout copy
Call it insurance, make it opt-in, and link the coverage terms and our claims page.
-
Retire the old app
Turn it off for new orders. Keep its claim path open for orders it already covered until those claim windows close.
Before you switch: checklist
- Export a list of open claims with your current provider
- Check your current contract’s notice period and fees
- Note which orders were covered by the old program
- Update your FAQ, shipping policy and checkout wording
- Tell your support team where new claims now go
What you get with InsureShip
- Licensed shipping insurance coverage
- Claims filed online and handled by InsureShip
- Coverage for loss, damage and porch-piracy theft
- Documents available for your counsel to review
The compliant path
Choose a licensed, insurance-based solution.
If you want to protect customers and protect your business at the same time, you need a licensed provider.
True, insurance-based coverage
Optional protection governed by policy terms, limits, exclusions and a claims process.
Potential conversion lift
A 100K-transaction case study reported +2.1% checkout conversion. Read the case study.
Lower support load
A defined claims path replaces improvised email threads and merchant-funded reships.
Do not take our word for it either. Ask InsureShip for the same two documents you should ask of any provider, and review them with your own counsel.
Request Our DocumentsSee how it works on your platform: Shopify · WooCommerce · Checkout Champ · Ecommerce overview
Shipping protection FAQs
Answers merchants need before they keep charging the fee
General information, not legal advice. Laws vary by state.
What is unlicensed shipping protection?
Unlicensed shipping protection is a checkout “shipping protection” or “package protection” fee that works like insurance but may not be backed by licensed insurance carriers or a compliant policy structure. Regulators can treat it as unlicensed insurance, and the merchant who charged the fee may carry the liability.
Is shipping protection legally considered insurance?
It can be. When a merchant charges a customer a fee in exchange for replacing, refunding or covering a lost, stolen or damaged package, regulators may treat the arrangement as insurance, depending on how it is structured and on state law. Review your checkout offer with qualified legal counsel.
Does calling it “package protection” instead of insurance change anything?
Not by itself. Insurance is generally defined by what a product does rather than what it is called, so renaming a fee does not necessarily change how regulators view it. See the shipping insurance FAQ for more.
How can I tell whether my shipping protection provider is licensed?
Ask the provider for two things: the name of the insurance company that underwrites the coverage, so you can confirm its rating with AM Best, and proof of active insurance licenses in the states where you sell. Marketing statements and claims are not a substitute for the actual documents.
Why should I ask which insurance company underwrites the coverage?
The insurer's name tells you who actually stands behind a provider's coverage. Ask which insurer underwrites it, then confirm its rating with AM Best. If a provider cannot name one, you cannot confirm that real insurance stands behind the protection you are selling to customers.
Am I liable if my shipping protection vendor is not licensed?
Potentially. Regulators, payment processors and customers may look to the merchant who charged the fee, not only the vendor that supplied the app. This is general information, not legal advice, so consult qualified counsel about your situation.
What are the risks of selling unlicensed shipping insurance?
Depending on the state and circumstances, risks can include civil fines, potential criminal liability for unlicensed insurance activity, class-action lawsuits, refunds to affected customers, merchant account shutdowns and processor bans, state Department of Insurance investigations, and loss of business licenses or operating authority.
What should I do if I am unsure about my current provider?
Ask the provider which insurance company underwrites the coverage and for proof of active licenses, confirm the insurer's rating with AM Best, review its written policy terms and claims process, and have qualified legal or insurance professionals assess your checkout offer. If the provider cannot produce the documents, consider whether to keep charging the fee until you can verify it.
Is InsureShip licensed?
Yes. InsureShip is licensed by the California Department of Insurance, license #0G55434, and licensed nationwide. Established in 2009, its coverage is underwritten by Navigators, a Hartford company, rated A+ by AM Best (Navigators Insurance Company, as of 2024; source: The Hartford's Navigators fact sheet). You should verify this for any provider, so request InsureShip's documentation and review it with your own counsel.
Can my store partner with InsureShip on advertising?
Your store’s traffic has value beyond product sales. InsureShip pays qualifying merchants for advertising space that connects shoppers with shipping insurance. Interested in seeing what a partnership could look like for your store? Advertising rates depend on your store’s audience, placement and eligibility. Final rates are subject to review and agreement.
Is this page legal advice?
No. This page provides general information about shipping insurance and compliance. Insurance regulation varies by state and depends on specific facts, so consult qualified legal or insurance professionals about your checkout offer.
What is the difference between shipping insurance and shipping protection?
Shipping insurance is sold under a written insurance policy by a licensed insurer or agency, and the merchant or shopper is the insured. "Shipping protection" is a marketing label that can describe anything from insurance-backed programs, where the provider buys a policy for itself, to apps whose own terms say they are not insurance and where the merchant funds claims out of the fees. Read the provider's terms to see which one you have.
How do I check whether a shipping insurance provider is licensed?
Ask for the legal name of the licensed entity, its license numbers or NPN, the name of the insurance carrier, and a policy or certificate reference. Then confirm the license through NIPR or your state Department of Insurance, and the carrier's rating through AM Best.
How do I switch from another shipping protection app to InsureShip?
Audit your current checkout and terms, ask your current provider for written answers to the 10 scorecard questions, request InsureShip's documents, connect InsureShip to your platform, update your checkout copy so the offer is opt-in and clearly labeled, then turn the old app off for new orders while keeping its claim path open for orders it already covered.
Protect customers and your business
Verify your provider, or switch to a licensed program.
Make sure everything you offer at checkout is compliant. Talk to InsureShip about a licensed, insurance-based shipping protection program for your store.
- Insurance-based coverage
- Documentation on request
- Program and claims guidance
Questions?hello@insureship.com1-866-701-3654
This page provides general information about shipping insurance and compliance and is not legal advice. Insurance regulation varies by state and depends on specific facts. InsureShip’s license (California DOI #0G55434) can be verified with the California Department of Insurance; the carrier rating is from The Hartford’s Navigators fact sheet (April 2025). Merchants should consult qualified legal or insurance professionals about their checkout offers.