Freight Insurance

The Incoterms rules and freight insurance

Updated Sept 12 2019.

There is now an important difference between Incoterms 2010 and Incoterms 2020

 

Only two Incoterms rules (CIF, CIP) refer to freight insurance, which is to be arranged and paid for by the seller.

For the other rules, each party makes a commercial decision as to whether to insure for the part of the journey where they are “on risk”

In practice it can be difficult to identify the point in a journey where damage takes place.   So even though risk may notionally transfer from seller to buyer during the journey, it is safest for cover to be taken out on a warehouse-to-warehouse basis.


Incoterms 2010
The level of cover mandated by the CIP and CIF rules is minimal, and may not satisfy the buyer’s requirements.   It is Clauses “C” of Institute Cargo Clauses – excludes many risks which many buyers want covered.

Incoterms 2020
The level of cover mandated by the CIF rule is minimal – Institute Cargo Clauses (C). However for the CIP rule, there is a higher level of cover – Institute Cargo Clauses (A)

The rationale is that in general, manufactured goods will require a higher level of insurance cover than commodities

In all cases, the parties may choose to specify a different level of insurance cover within their commercial agreement


All freight insurance usually excludes consequential loss, e.g. the knock-on effects of buyer missing a contract deadline or a sales season.  This risk can sometimes be included by agreement with the insurer.

So the risks to be covered should be discussed and then incorporated into the commercial agreement.


Other considerations for CIP and CIF

The training need

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