In global shipping contracts governed by Incoterms, CIP insurance plays a vital role in protecting goods during international transportation. CIP stands for Carriage and Insurance Paid To, and it’s an Incoterm published by the International Chamber of Commerce (ICC) that defines the responsibilities of buyers and sellers in international trade.When CIP insurance is included in a sales agreement, the seller is obligated not only to pay for the transportation of goods to a named destination but also to provide insurance coverage for the cargo while in transit.This guide explains what CIP insurance is, how it works, who is responsible for what, and when to use it.
1.What Is CIP Insurance?
CIP insurance is the insurance requirement included in the CIP Incoterm, where the seller is responsible for:
- Arranging transportation of goods to the agreed destination.
- Procuring and paying for cargo insurance that covers the buyer’s risk of loss or damage during carriage.
CIP is one of the only two Incoterms that require the seller to provide insurance (the other is CIF). Unlike CIF (Cost, Insurance, and Freight), which is only applicable to sea freight, CIP can be used for any mode of transport, including road, rail, air, or multimodal shipments.
2.Key Characteristics of CIP Insurance
| Feature | CIP Insurance Requirement |
|---|---|
| Applicable Transport Modes | All modes: air, road, rail, sea, or combined (multimodal) |
| Insurance Required? | Yes, mandatory for seller |
| Minimum Coverage Level | 110% of contract value (Incoterms 2020) |
| Insurance Clause Standard | Institute Cargo Clauses (A) or equivalent “All Risk” coverage |
| Risk Transfer Point | When seller delivers goods to first carrier, not final delivery |
| Named Place | Destination agreed by buyer and seller |
3.How CIP Insurance Works
Under a CIP agreement, the seller is responsible for:
- Export clearance in the country of origin,
- Delivery of the goods to the first carrier,
- Payment of freight to the named destination, and
- Purchasing insurance coverage for the benefit of the buyer.
However, the risk passes from the seller to the buyer as soon as the goods are handed over to the first carrier—not when they arrive at the final destination. That’s why insurance is essential under CIP: the goods are in the buyer’s risk zone while still en route, so the seller must secure appropriate insurance.
4.Seller’s Responsibilities Under CIP Insurance
Under CIP terms, the seller must:
1.Contract for Carriage
Arrange and pay for transport to the agreed place of destination.
2.Insure the Cargo
Purchase cargo insurance in the buyer’s name to cover the shipment from the point of dispatch to the destination.
3.Minimum Insurance
CoverageAccording to Incoterms 2020, the seller must obtain Institute Cargo Clauses (A) or equivalent, which is an “all-risk” policy, at 110% of the invoice value.
4.Provide Documents
Hand over documents like the bill of lading, commercial invoice, and insurance certificate so that the buyer can claim if there’s a loss or damage.
5.Pay Export Duties & Taxes
Complete all export customs formalities and cover related costs.
5.Buyer’s Responsibilities Under CIP
Even though the seller pays for freight and insurance, the buyer still has responsibilities under CIP:
- Assume risk once the goods are delivered to the first carrier.
- Pay for import customs clearance, taxes, and duties.
- Cover unloading costs at the destination (unless otherwise agreed).
- Verify the insurance policy, and if needed, request extended coverage if the standard 110% or ICC(A) terms are insufficient for sensitive or high-value goods.
6.CIP vs. CIF: What’s the Difference?
| Feature | CIP | CIF |
|---|---|---|
| Mode of Transport | Any (multimodal, air, sea, road, rail) | Sea and inland water transport only |
| Risk Transfer Point | When goods are handed to the first carrier | When goods are loaded onto the vessel |
| Insurance Requirement | Seller must buy all-risk insurance (ICC A) | Seller can buy minimum coverage (ICC C) |
| Insurance Beneficiary | Buyer | Buyer |
CIP insurance is often more buyer-friendly than CIF because it requires stronger insurance coverage and can be used in flexible logistics routes.
7.When to Use CIP Insurance
CIP is commonly used when:
- The buyer wants the seller to handle logistics and insurance up to a specific point.
- Goods are shipped using air freight, courier, or multimodal methods.
- The buyer prefers a hands-off approach in the early stages of transport.
- The shipment involves valuable goods that require stronger insurance coverage.
8.Advantages of CIP Insurance
The seller is obligated to buy comprehensive insurance in the buyer’s favor, which minimizes exposure to loss or damage in transit.
Unlike CIF, CIP applies across all transport modes, making it more suitable for modern global supply chains.
The seller handles logistics, export procedures, and insurance—simplifying the process for the buyer.
9.Potential Drawbacks and Considerations
1.Early Transfer of Risk
Even though the seller pays for insurance, the buyer assumes risk once the goods are handed to the first carrier. This might lead to confusion if the goods are damaged before arrival.
2.Limited Coverage
Although the minimum insurance requirement is “all risk” at 110% of invoice value, certain exclusions may still apply. For fragile, perishable, or high-value goods, the buyer should consider additional insurance.
3.Claims Process Can Be Complex
If a loss occurs, the buyer must file the claim directly with the seller’s insurer, which can be cumbersome—especially across jurisdictions.
Final Thoughts
CIP insurance is a crucial component of international trade contracts under the CIP Incoterm. It ensures that the buyer’s cargo is protected with comprehensive insurance even after the seller relinquishes physical control. However, since the risk transfers early, buyers must understand when they become responsible and what the insurance policy actually covers.
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FAQs
Q1:What level of insurance is required?
Incoterms 2020 mandates all-risk coverage (ICC A) at 110% of the invoice value.
Q2: When does risk transfer to the buyer?
Risk transfers when the seller delivers goods to the first carrier, not when they arrive at the final destination.
Q3: Can the buyer request additional coverage?
Yes. If the goods are particularly valuable or vulnerable, the buyer may ask the seller to purchase higher coverage, or arrange their own supplemental insurance.
Q4:Can the buyer request additional coverage?
Yes. If the goods are particularly valuable or vulnerable, the buyer may ask the seller to purchase higher coverage, or arrange their own supplemental insurance.
Q5:What documents are involved in CIP insurance?
Typical documents include the insurance certificate, commercial invoice, bill of lading, and export documents like the packing list or export declaration.