Fake shipping insurance is a legal and financial time bomb.
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 fake shipping insurance?
Fake shipping insurance 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.
Verify Your ProviderDue 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.
A copy of their reinsurance policy
This shows exactly which A-rated carrier is backing their coverage.
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 insurance carriers with a reinsurance policy you can review. |
| 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. |
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
Fake shipping insurance FAQs
Answers merchants need before they keep charging the fee
General information, not legal advice. Laws vary by state.
What is fake shipping insurance?
Fake shipping insurance 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 documents: a copy of its reinsurance policy, which shows which carrier backs the coverage, and proof of active insurance licenses in the states where you sell. Marketing statements and claims are not a substitute for the actual documents.
What is a reinsurance policy, and why should I ask for it?
A reinsurance policy shows exactly which insurance carrier is backing a provider's coverage. If a provider cannot show 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 for its reinsurance policy and proof of active licenses, 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?
InsureShip states that it is fully licensed in all 50 states and backed by A-rated insurance carriers. You should verify this for any provider, so request InsureShip's documentation and review it with your own counsel.
Can Shopify stores still earn revenue from shipping protection?
Yes. Merchants using a licensed, insurance-based program may retain revenue above the wholesale cost of protection, subject to program terms. See Shopify shipping insurance and pricing.
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.
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. Statements about InsureShip’s licensing and carrier backing reflect InsureShip’s own representations; request supporting documentation. Merchants should consult qualified legal or insurance professionals about their checkout offers.