Paypal is going to hold the seller responsible for getting the package to the buyer. If delivery confirmation shows the package to have not been delivered, then the seller is responsible. The only way they can do this is by taking the money out of your Paypal account.
The postal service does not charge fees to file an insurance claim on a lost package. You just have to wait I believe 21 days to make sure it doesn't turn up. Then you file and have to have proof of the value of lost item. This can be a invoice, even printed off the computer. You will need something showing value, without it you won't get your money. After 4 to 6 weeks they will issue you a refund and even refund the postage you payed to mail the lost item. (all you won't get back is the insurance fee) It's not difficult to file and the worst thing is it takes 6 weeks or so before you have a check in hand. Insurance is your only recourse to recover your loss when selling on Ebay now, as they have the buyer protected and don't care if you purchase it or not. They removed the option to offer it to the buyer when selling separately. So, yes I put it on anything that I sell for my protection not the buyer.