Incoterms 2020 - What Every Exporter Needs to Know About Insurance Responsibility
Incoterms 2020 decide who must arrange and pay for cargo insurance. CIF requires ICC(C) minimum; CIP requires ICC(A) all risks.
Incoterms 2020 - What Every Exporter Needs to Know About Insurance Responsibility
Incoterms 2020 are the internationally recognised rules published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international trade contracts. They determine who pays for freight, who is responsible for customs clearance, where risk transfers from seller to buyer, and - critically for cargo insurance - who is contractually required to arrange and pay for the insurance policy. The current edition is Incoterms 2020, published as ICC Publication No. 723E (ISBN 978-92-842-0510-3), effective from 1 January 2020.
The 11 Incoterms 2020 and Who Is Responsible for Insurance
Any Mode of Transport
| Term | Risk Transfers At | Insurance Obligation | Minimum Cover |
|---|---|---|---|
| EXW | Seller's premises | None | Buyer should insure from pickup |
| FCA | Handed to carrier | None | Buyer should insure from handover |
| CPT | At first carrier | None | Buyer bears risk on main carriage |
| CIP | At first carrier | Seller MUST insure | ICC (A) all risks |
| DAP | Named destination | None, seller bears risk | Seller should insure |
| DPU | After unloading | None, seller bears risk | Seller should insure |
| DDP | Destination, duty paid | None, seller bears all risk | Seller should insure |
Sea and Inland Waterway Only
| Term | Risk Transfers At | Insurance Obligation | Minimum Cover |
|---|---|---|---|
| FAS | Alongside ship | None | Buyer should insure |
| FOB | On board the vessel | None | Buyer should insure from loading |
| CFR | On board the vessel | None | Buyer bears risk despite seller paying freight |
| CIF | On board the vessel | Seller MUST insure | ICC (C) minimum |
The Most Important Change: CIP Now Requires ICC (A)
Under Incoterms 2010, both CIF and CIP required only ICC (C) minimum cover. In Incoterms 2020 this was split: CIF continues to require ICC (C), while CIP now requires ICC (A) all risks.
The Gap Risk Under CFR, CPT, and FOB
Under CFR and CPT, the seller pays freight to destination but risk transfers early - on board the vessel (CFR) or at the first carrier (CPT). Buyers sometimes assume the seller bears the risk because the seller is paying the freight. This is not the case. The buyer must arrange their own cargo insurance.
Common Mistakes
- Accepting CIF and assuming the seller's cover is adequate (CIF only requires ICC (C))
- Selling FOB and arranging freight as a courtesy (risk has already transferred)
- Using CPT or CFR without separately insuring
- Using the wrong Incoterm for the mode of transport
FAQ
Who is responsible for cargo insurance under CIF? The seller, at ICC (C) minimum, for 110% of contract value.
What is the difference between CIF and CIP for insurance? CIF requires ICC (C); CIP requires ICC (A) all risks.
Does FOB mean I don't need cargo insurance? No. The buyer bears risk from loading and should arrange insurance.
Which Incoterm requires the highest insurance level? CIP requires ICC (A) all risks.
Official Source
Incoterms 2020 is published by the ICC as Publication No. 723E (ISBN 978-92-842-0510-3), effective 1 January 2020. ICC Incoterms rules
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