Make money with shipping insurance on eBay

Many sellers on eBay fail to realize the profit potential from shipping insurance.  For the uninitiated, shipping insurance is a fee paid by the buyer for protection against lost or damaged packages.  At the time of this posting, the USPS’s insurance rates for small-value items such as video games range from around 3.6% (for a $60 game) to upwards of 8.5% (for games costing $20 or less).  I, personally, have never dealt with a lost package either as a buyer or seller, and judging from others’ experiences, I would guess conservatively that less than 0.5% packages (or 1 out of every 200) are lost.  That’s a pretty big disparity between the rates for insurance and lost packages, so why not capitalize on it?

Sellers who offer USPS insurance are giving up a precious opportunity to make some extra profit, and because they are forbidden to charge more than the USPS’s rate, they actually lose money due to Paypal fees (only a few cents, but still…).  Don’t be like those guys.  Instead, offer private insurance at a slightly lower cost.  You can use whatever fee structure you want – a tiered rate, a base price plus a percentage (e.g., $1+1%), etc.  Just make sure to outline all of your terms and conditions so that customers know exactly what they’re getting when they buy insurance from you.  If you can offer complete coverage for lost or damaged items along with lower prices and less (possibly zero) paperwork, you’ll make insurance a very attractive option for buyers.

WARNING:  By offering private insurance, you assume the risk for any lost or damaged items.  Therefore, there is a small chance that you will lose money, especially if you only sell a few items.  For example, if you sell 10 items, assuming that 0.5% of packages get lost, there is a 4.9% chance that at least one of your packages will be lost.  If you mainly sell small-ticket items, chances are that you could stomach the loss if an item goes MIA, so the risk would be worth the expected reward.  On the other hand, if the items you sell are usually worth hundreds of dollars and any loss could cripple you, private insurance might not be the best option for you.


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