Incoterms and cargo insurance: who has to insure the goods?
Incoterms® 2020 decide when risk passes from seller to buyer. Only two of the eleven rules make anyone buy insurance. For the rest, whoever carries the risk should insure it.
Only CIF and CIP require insurance
| Rule | Modes | Who must insure | Minimum cover |
|---|---|---|---|
| CIF Cost, Insurance and Freight | Sea and inland waterway only | Seller | ICC (C), at least 110% of the contract price |
| CIP Carriage and Insurance Paid To | Any mode, including multimodal | Seller | ICC (A), at least 110% of the contract price |
| All other rules (EXW, FCA, FAS, FOB, CFR, CPT, DAP, DPU, DDP) | — | No one is obliged | The party carrying the risk should insure |
The CIF trap
Under CIF and CIP, risk passes to the buyer early: when the goods are loaded on board (CIF) or handed to the first carrier (CIP). The seller buys the policy, but the buyer is the one who suffers if the goods are damaged on the main voyage. Under CIF, that policy only has to meet ICC (C), the minimum. It does not cover theft, rough handling or rain damage. Many importers buying CIF discover this only when they make a claim.
If you buy on CIF, either ask the seller in the contract to insure on ICC (A), or buy your own top-up cover.
Buying FOB, FCA or EXW
Under these rules you, the buyer, carry the risk for most of the journey and nobody is obliged to insure it. If you don't insure, you are relying on carrier liability, which is capped by weight. See carrier liability limits.
Selling CFR, CPT, DAP or DDP
- CFR / CPT: risk passes to the buyer at loading, but you pay the freight. The buyer should insure.
- DAP / DPU / DDP: you carry the risk until delivery at destination. You, the seller, should insure.
Incoterms® is a trademark of the International Chamber of Commerce. Incoterms® 2020 is the current edition.
Questions
Does CIF include insurance?
Yes, but only minimum cover: the seller must insure on Institute Cargo Clauses (C) for at least 110% of the contract price.
What is the difference between CIF and CIP insurance?
CIF requires ICC (C), the minimum cover, and is for sea transport only. CIP requires ICC (A), all-risks cover, and works for any mode.
Who insures under FOB?
No one is obliged to. The buyer carries the risk once goods are on board, so the buyer should arrange cargo insurance.
Sources
Guides
- ICC (A), (B) and (C): which cargo cover do you need?
- How much will the carrier pay if your cargo is lost?
- General average: why you may pay for someone else's loss
- Do you need cargo insurance? Five questions that decide
- Freight insurance vs cargo insurance: what's the difference?
- Cargo insurance documents: what you need, and when
- Marine cargo insurance glossary — English / العربية