State Farm Insurance License Practice Exam

What does cargo insurance cover?

1. Goods while they are in storage

2. Goods while they are in transit over water

3. Goods during international shipping

4. Goods lost in a warehouse

The correct answer is: Goods while they are in transit over water

Cargo insurance is specifically designed to protect goods while they are being transported, especially over water. It provides coverage against risks such as theft, damage, and loss that may occur during transit. This type of insurance is crucial for businesses engaged in shipping goods internationally or domestically, as it ensures that they are financially protected if their cargo is affected by unforeseen circumstances like accidents or adverse weather conditions during the journey. While other options may relate to the general handling of goods, they do not accurately capture the primary function of cargo insurance. For instance, goods in storage or lost in a warehouse are typically covered under different types of insurance, such as property or warehouse insurance, which are focused on covering items while they are not in transit. International shipping can indeed be covered by cargo insurance; however, the phrase 'over water' distinctly identifies the most common application of cargo insurance, aligning it more closely with maritime transport than with other logistics or storage situations.