Copy/Paste from a similar arfcom thread:
First, let's start out with what happens if you DON'T choose the $3 shipping protection. If something happens that's our fault, we'll take care of you. If it's lost in transit, we'll take care of you. Even if it shows up damaged with evidence on the packaging as such, we'll take care of you because we can go after the carrier for damages. The main benefit of this shipping protection is for stolen items. In a case where the carrier scans the package as delivered or has other proof of delivery, and you claim to have not received it (i.e. it was stolen,) then there's not really anything we can do about it. The $3 is like any other insurance. If something bad happens, where the package has proof of delivery, but it's not there when you go to grab it, the $3 provides a budget to take care of it. We actually got the idea from items we've personally ordered from other e-com vendors for personal use (not gun related stuff.) Interestingly enough, the order that we got the idea from had the cost already built into the shipping as a surcharge, so we were forced to pay it. We're giving you the option to opt-in for insurance, instead of automatically building it into the cost. It's flattering that you would compare us to someone as big as Amazon, but we're nowhere near that, and don't deal in products that have high-enough margin to be able to send out free replacements for every claim, carte blanche. The $3 insurance is the best, most economical way that we have to provide that type of buyer protection. Unfortunately we can't make everyone happy, and if we would've just increased all of our shipping rates by $1 for every order to cover the costs of a policy like Amazon's, then someone else would pop into this forum and complain about our shipping rates being too high. Offering a $3 protection plan is the best solution we have, so that everyone remains whole.
Hopefully that clears up any misunderstandings you may have had.