CIP Terms and Insurance Obligations
Interlink編集部What Are CIP Terms and Insurance Obligations?
CIP (Carriage and Insurance Paid To) is an Incoterms condition where the seller bears the cost of carriage and insurance premiums up to the named place of destination.
This condition is CPT with the added obligation of insurance coverage. Under Incoterms 2020, it generally requires coverage corresponding to the broad insurance clause ICC-A.
Under CIP, the seller pays the costs of carriage and insurance up to the named destination, but the risk of loss or damage to the goods does not remain with the seller until arrival at the destination. Instead, risk passes to the buyer once the goods have been delivered to the first carrier.
In other words, the practical feature of CIP is that while the seller bears the cost of carriage and insurance to the named place, the risk passes early to the buyer.
Scope Covered in This Article
This article organizes the seller's insurance obligation under CIP terms, risk transfer, insurance levels, differences from CIF and CPT, coverage levels corresponding to ICC-A, B, and C, verification of insurance documents, freight forwarder practices, and the need for additional insurance.
| Topic | Contents Covered in This Article | Areas to Separate |
|---|---|---|
| Basics of CIP Terms | Clarifies the structure where the seller bears the cost of carriage and marine cargo insurance premiums up to the named destination. | Costs, insurance obligations, and timing of risk transfer are treated separately. |
| Risk Transfer | Clarifies that risk passes to the buyer when the goods are handed over to the first carrier. | Paying costs until the destination and bearing risk until the destination are distinct concepts. |
| Insurance Obligation | Deals with the seller’s obligation to arrange marine cargo insurance for the buyer. | Having insurance does not mean all damages are necessarily covered. |
| Insurance Levels under Incoterms 2020 | Clarifies that CIP generally requires broad coverage corresponding to ICC-A. | It should be distinguished from CIF’s ICC-C minimum coverage and not treated equivalently. |
| Differences from CIF and CPT | Compares cost burden, risk transfer, insurance obligations, and insurance levels. | Differentiates CIF for sea transport and CIP as suitable for multimodal transport. |
| Insurance Documents and L/C Practice | Verifies insurance amounts, insured parties, endorsements, insurance policies, and alignment with L/C terms. | Being formally complete as bank documents is separate from actually being able to claim sufficient insurance payout in the event of loss. |
What Are CIP Terms?
Under CIP terms, the seller contracts for carriage and pays the costs of transport to the named destination.
However, the seller does not guarantee the physical arrival of the goods. Risk transfers to the buyer when the goods have been delivered to the first carrier.
For example, even if the seller arranges air, sea, and truck carriage to the destination, the Incoterms risk transfer occurs at the point of delivery to the first carrier.
Therefore, it is crucial to correctly understand that under CIP, the timing of cost payment and risk transfer does not coincide.
Comparisons Between CIP, CIF, and CPT
To understand CIP, it is important to differentiate it from CIF and CPT, especially regarding insurance obligations, coverage levels, and timing of risk transfer.
| Term | Main Costs Borne by Seller | Risk Transfer Point | Insurance Obligation and Coverage Level |
|---|---|---|---|
| CIP | Transport costs and marine cargo insurance premiums up to named place | When goods are delivered to the first carrier | Seller is obligated to arrange insurance. Under Incoterms 2020, broad coverage equivalent to ICC-A is generally required. |
| CIF | Sea freight and marine cargo insurance premiums to port of destination | When goods are loaded on board the vessel at the shipment port | Seller is obligated to arrange insurance, but the minimum coverage equivalent to ICC-C is generally sufficient. |
| CPT | Transport costs to named place | When goods are delivered to the first carrier | Seller has no insurance obligation. Buyer arranges insurance if necessary. |
CIP and CPT share a similar risk transfer concept, but CIP requires seller-arranged insurance. CIP and CIF both include insurance obligations but differ in insurance coverage levels.
Insurance Obligation
Under CIP, the seller is obligated to arrange marine cargo insurance.
This insurance is not arranged to protect the seller’s own risk but to protect the buyer’s insurable interest after risk transfer.
In practical logistics, it is important that the seller arranges the insurance contract and effectively delivers or endorses the insurance policy or certificate so that the buyer or a designated party can use it in practice.
Even if an insurance policy exists, if it is issued in a manner or name that the buyer cannot use to make a claim, practical difficulties may arise when a loss occurs.
Changes under Incoterms 2020
Incoterms 2020 stipulates that CIP terms generally require coverage equivalent to the broad ICC-A clause.
This reflects CIP’s frequent use in container transport, air transport, truck transport, and multimodal transport, where broader insurance coverage is often necessary due to risks during transit.
Meanwhile, CIF terms remain based on the minimum ICC-C level coverage, so the insurance coverage levels between CIF and CIP differ.
Why Is ICC-A Equivalent Insurance Important under CIP?
CIP is used not only for sea transport but also for air, truck, rail, and multimodal transport.
For container cargo and multimodal shipments, after delivery to the first carrier, cargo passes through multiple handling points such as CFS, CY, airport warehouses, terminals, warehouses, inland delivery, and transshipment points.
In such shipments, damages such as breakage, water damage, theft, damage during handling, accidents during transshipment, or accidents during inland delivery can occur, which may not be adequately covered by limited enumerations of risks in narrower insurance clauses.
Therefore, CIP is designed to require broader insurance coverage than CIF.
However, even with coverage equivalent to ICC-A, not all damages are automatically covered. Exclusions in the insurance terms may apply to issues such as inadequate packing, the inherent nature of the cargo, delays, normal quality deterioration, intentional acts, or serious management negligence.
Comparison of Coverage Levels: ICC-A, ICC-B, and ICC-C
Under CIP terms, wide coverage equivalent to ICC-A is generally required, but it is important to understand the differences between ICC-A, ICC-B, and ICC-C.
| Insurance Terms | Coverage Level Image | Common Covered Incidents | Points to Note |
|---|---|---|---|
| ICC-A | Broad coverage | Conditions likely to cover damage caused by accidental external events widely. | Exclusions such as inadequate packing, inherent nature, delay, normal wear and tear, intentional acts require separate confirmation. |
| ICC-B | Intermediate coverage | Broader than ICC-C, but less comprehensive than ICC-A. | Depending on cargo characteristics and cause of the incident, some damage may not be covered. |
| ICC-C | Limited minimum coverage | Focuses on specific incident types such as fire, explosion, grounding, sinking, capsizing, collision, and general average. | Coverage may be insufficient for rain damage, theft, damage during handling, leakage, dents, etc. |
Even when insured with ICC-A equivalent coverage under CIP terms, the policy’s deductibles, temperature control conditions, packing requirements, delay exclusions, notification obligations, and survey conditions need to be checked.
Misalignment between Cost Burden and Risk Transfer
Under CIP terms, the seller covers transportation costs to the named place. However, risk transfers to the buyer not upon arrival at the named place but at the time of delivery to the first carrier.
Therefore, the buyer should be careful not to misunderstand that “since the seller pays freight to the named place, the risk remains with the seller until arrival.”
In actual logistics practice, the buyer frequently handles insurance claims for incidents occurring after risk has transferred. Even if the seller arranges insurance, the buyer may lead accident response activities such as photo documentation, surveys, damage assessments, and notification procedures.
In other words, under CIP terms, it is important to understand that although the seller arranges payment and insurance, insurance claim handling after incidents often takes place on the buyer’s side.
Insurance Amount
Under CIP terms, based on Incoterms 2020 provisions, the insurance amount is generally set at no less than 110% of the contract price.
This is to include not only the cargo value but also additional costs and expected profits that could arise in the event of an incident.
However, whether 110% is sufficient depends on the transaction details, cargo characteristics, additional costs, L/C conditions, domestic delivery costs, inspection fees, and replacement costs, so confirmation is necessary.
For high-value cargo, temperature-controlled cargo, cargo with tight delivery deadlines, or cargo where substitutes are hard to procure, the standard insurance amount may not cover actual losses adequately.
CIP Transaction Stage Flow
In CIP transactions, there are important items to confirm at each step: sales contract, insurance arrangement, delivery to carrier, transport, arrival at named place, and insurance claims in case of incidents.
| Stage | Main Operations | Items to Confirm | Actions if Issues Arise |
|---|---|---|---|
| At the time of sales contract | Agree on CIP as the price term | Confirm named place, insurance terms, insurance amount, necessity of additional coverage. | If conditions other than ICC-A equivalent or special terms are required, clearly specify in the contract. |
| Before shipment | Seller arranges transport contract and insurance | Confirm insurance terms, insured transport sections, cargo details, insurance amount, policy holder’s name. | If terms are unclear, request draft insurance policy or insurance conditions. |
| At delivery to the first carrier | Seller hands over cargo to the carrier | Confirm that risk transfers to the buyer at this point. | Keep delivery records, receipts, and loading records. |
| During transport | Conducting ocean/air/land/multimodal transport | Check accident locations, transport records, temperature logs, delivery history. | If an accident is suspected, notify relevant parties promptly. |
| Upon arrival at the named place | Buyer or designated party receives cargo | Inspect exterior, quantity, damage; verify receipt, POD, and take photos. | If abnormalities exist, note exceptions and notify the insurer. |
| Checking shipping and insurance documents | Buyer reviews insurance policy and transport documents | Verify consistency of insurance policy, B/L, Sea Waybill, invoice, and L/C terms. | If there are errors in names, endorsements, or insurance amounts, request corrections from the seller. |
| When an incident occurs | Buyer proceeds with insurance claim | Confirm insurance conditions, cause of loss, damage amount, deductibles, and notification deadlines. | Prepare photos, survey reports, damage calculations, and delivery records. |
| Decision on additional coverage | Buyer supplements insufficient coverage | Verify whether the standard CIP insurance covers all risks. | Consider additional coverage for temperature control, war/strike, special cargo, etc. |
Key Points for Practical Confirmation
Under CIP terms, do not rely solely on the fact that insurance is arranged; verify the actual insurance terms carefully.
- Is the insurance coverage equivalent to ICC-A?
- Is the insured amount at least 110% of the contract price?
- Are the policy holder name and endorsements on the insurance policy or certificate correct?
- If L/C terms apply, do the insurance documents comply?
- Do the exclusions and uncovered risks match the actual transaction?
- Do the insured transport segments match the named place delivery scope?
- Is additional coverage needed for temperature-controlled or high-value cargo?
When a freight forwarder is involved, it is also important to confirm consistency among transport conditions, insurance policy, invoice, B/L, Sea Waybill, and L/C requirements.
Verification Checklist
Under CIP terms, while the seller arranges insurance, the risk often transfers early to the buyer. Therefore, it is necessary to manage and separate confirmation items at contract stage, pre-shipment, document receipt, and incident occurrence.
| Check Timing | Party to Confirm With | Items to Confirm | Actions if Issues Arise |
|---|---|---|---|
| At Sales Contract | Seller, Buyer, Sales Representative | CIP designated place, insurance terms, insured amount, need for additional coverage | Specify required insurance level and special clauses in the contract or order form. |
| Before Shipment | Seller, Freight Forwarder, Insurance Officer | Insurance terms arranged by seller, coverage segment, cargo details, insured amount | If terms are unclear, request presentation of insurance details before shipment. |
| At Carrier Handover | Seller, Carrier, Freight Forwarder | Time of handover, receipt record, timing of risk transfer, cargo condition | Keep delivery records and receipts as foundational evidence for any incident segment. |
| When Verifying Insurance Policy | Seller, Insurance Company, Insurance Agent | Whether equal to ICC-A, insured amount, name, endorsement, assignment, claim rights | If the buyer cannot claim insurance, request corrections to endorsements or assignments. |
| At L/C Transactions | Bank, Seller, Buyer | L/C terms, insurance policy, B/L, invoice, consistency of insured amount | If documents do not match, coordinate with bank and seller before settlement. |
| Upon Cargo Arrival | Buyer, Warehouse, Freight Forwarder, Delivery Company | Packaging, quantity, damage, receipt, POD, photos, inspection records | If irregularities are found, note exceptions and notify the insurance company. |
| When Claiming Insurance | Insurance Company, Insurance Agent, Surveyor | Cause of incident, coverage scope, deductibles, damage data, notification deadlines | Prepare photos, survey reports, delivery records, and damage documentation. |
| In Special Cargo Transactions | Buyer, Seller, Insurance Officer, Freight Forwarder | Temperature control, hazardous goods, high-value cargo, precision equipment, war/strike risks | If standard CIP insurance is insufficient, consider additional coverage. |
Common Practical Issues
While CIP terms impose an insurance obligation and may appear reassuring, issues commonly arise regarding the quick risk transfer, policy name, insured amount, L/C requirements, and insufficient coverage for special cargo.
| Case | Frequent Issues | Documents to Check | Practical Actions |
|---|---|---|---|
| Misunderstanding CIP and CIF as Having the Same Insurance Level | CIP usually corresponds to ICC-A level, while CIF generally corresponds to ICC-C level; their insurance standards differ. | Sales contract, insurance policy, ICC terms, invoice | Even with insured terms, verify the coverage level individually. |
| Misunderstanding That Risk Remains with Seller Until Designated Place Arrival | Although seller bears transport costs up to the designated place, risk transfers to buyer at handover to the first carrier. | Sales contract, handover records, transport documents, insurance policy | Explain cost burden and risk transfer separately. |
| Insufficient Policy Name or Endorsement Resulting in Claim Difficulties | Even if an insurance policy exists, the buyer may be unable to use it to claim if name or endorsement are insufficient. | Insurance policy, endorsement section, sales contract, L/C terms | Confirm that the buyer can claim; request correction from seller if incomplete. |
| Insufficient Insured Amount | May not meet 110% of sales price or fail to adequately account for additional costs. | Insurance policy, invoice, insured amount, L/C terms, damage documentation | Cross-check insured amount with contract terms and estimated actual losses. |
| Discrepancy Between L/C Terms and Insurance Policy | Insurance conditions, insured amount, dates, names, or transport segments do not comply with L/C terms, disrupting bank settlement. | L/C terms, insurance policy, B/L, invoice, bank inquiry records | Adjust discrepancies with seller and bank before settlement. |
| ICC-A Alone Inadequate for Temperature-Controlled Cargo | Even at ICC-A level, lack of temperature deviation coverage or special clauses may lead to insufficient coverage. | Insurance policy, temperature logs, temperature conditions, survey reports, quality inspection data | For temperature-controlled cargo, individually verify temperature deviation coverage and special terms. |
| Assuming Quality Deterioration from Delay Is Covered | Even under ICC-A, losses due solely to delay may be excluded due to deductible issues. | Insurance policy, transport logs, delay records, quality inspection data, incident cause evidence | Separate delay-related issues from those caused by external incidents. |
| Assuming Insurance Covers Up to Designated Place, But Coverage Segment Falls Short | If the CIP designated place and insurance policy coverage segment do not match, subsequent segments may be uninsured. | Sales contract, insurance policy, transport schedule, delivery arrangement documents | Match the CIP designated place against insured transit segments. |
Examples
Example 1: ICC-A Level Insurance Under CIP, But Delay Damage Became an Issue
Precision parts were imported on CIP terms, with the seller arranging ICC-A level marine cargo insurance. However, due to vessel delays, delivery deadlines were missed, resulting in production stoppages and lost sales opportunities on the buyer’s side.
In this case, even with ICC-A level insurance, economic losses or indirect damages caused solely by delay may not be covered.
In practice, it is necessary to distinguish whether there was physical damage to the cargo, quality deterioration due to delay, or simply economic losses caused by late delivery.
Example 2: Insufficient Policy Name and Endorsement Caused Insurance Claim Delays
Although the seller arranged marine cargo insurance under CIP terms, the insurance policy remained in the seller’s name and was not endorsed or assigned in a form usable by the buyer for claims.
When damage was discovered upon cargo arrival, the buyer attempted to file a claim with the insurer, but the claim rights and documentation issues delayed processing.
Under CIP terms, it is important to confirm not only that insurance is in place but also that the buyer holds documents enabling actual insurance claims.
Example 3: Standard CIP Insurance Was Insufficient for Temperature-Controlled Cargo
Pharmaceutical products were transported under CIP terms, with the seller arranging insurance equivalent to ICC-A. However, a short-term temperature deviation occurred during transportation, resulting in the product being unsellable due to quality assurance reasons.
In this case, even with ICC-A level coverage, it is important to verify how the temperature deviation is covered by reviewing temperature logs, temperature control clauses, survey conditions, and quality inspection documents.
For temperature-controlled cargo, relying solely on the standard insurance obligation under CIP terms is not sufficient. Insurance conditions that address temperature deviation risks should be confirmed before shipment.
Situations Where the Buyer Should Consider Additional Insurance
Under CIP terms, the seller is obligated to arrange insurance, but standard coverage may be insufficient for the buyer’s actual risks.
- When importing high-value cargo or precision equipment
- When transporting temperature-controlled cargo, pharmaceuticals, fresh products, or chemicals
- When there is significant risk of quality deterioration or unsaleability due to delays
- When special risks such as war, strikes, or riots are present
- When the insured period on the insurance policy does not adequately extend to the CIP designated place
- When additional conditions are required by L/C terms or internal risk management standards
Whether additional insurance is necessary should be determined not only by trade terms but also by considering cargo characteristics, transport routes, storage conditions, domestic delivery, sales destination standards, and the insurance policy’s exclusions.
Points Freight Forwarders Should Pay Attention To
When a freight forwarder is involved in transportation under CIP terms, there are occasions where verifying insurance terms, transportation segments, designated places, and document consistency is needed beyond simply arranging transport.
Especially when shippers assume “insurance is covered under CIP,” it is essential to separately confirm insurance conditions, coverage segments, the insured party, endorsements, exclusions, and special cargo risks.
Freight forwarders should explain that under CIP, risk transfer occurs not at arrival at the designated place but upon delivery to the first carrier, and that in the event of an incident, the buyer may actually carry out the insurance claim procedures.
Common Misunderstandings
| Misunderstanding | Actual Concept | Practical Note |
|---|---|---|
| CIP and CIF have the same insurance level | Both require the seller to arrange insurance, but CIP generally requires ICC-A level coverage, while CIF requires ICC-C level, reflecting different insurance standards. | Always confirm the ICC condition even with insured terms. |
| ICC-A covers all types of loss | ICC-A offers broad coverage, but exclusions for inadequate packing, delays, intrinsic nature of the goods, and normal wear and tear apply. | Check the policy’s exclusions and cargo characteristics carefully. |
| Under CIP, risk transfer stays with the seller until arrival at the designated place | Risk transfers to the buyer upon delivery to the first carrier. | Explain cost allocation and risk transfer separately. |
| Under CIP, the buyer does not need to handle insurance claims | Even if the seller arranges insurance, the buyer may need to collect documents necessary for claims in case of incidents. | Prepare photos, surveys, receipts, and damage valuation promptly. |
| Having an insurance policy guarantees the buyer can claim | If the insured party, endorsements, transfers, or claim rights are inadequate, this may hinder claims. | Confirm the buyer can actually claim with the documents provided. |
| 110% of purchase price insurance always suffices | 110% is a standard, but it may be insufficient for special cargo, additional costs, domestic delivery fees, or inspection expenses. | Review based on cargo nature and costs incurred during damage. |
| Standard insurance under CIP suffices for special cargo | Temperature-controlled cargo, pharmaceuticals, dangerous goods, and high-value items may require specific clauses or additional coverage. | Consider additional insurance to cover risks not covered by standard policies. |
| L/C-compliant insurance documents guarantee full recovery of actual loss | Compliance with bank document requirements does not guarantee sufficient compensation for incidents. | Check both document compliance and scope of coverage. |
Important Points
Under CIP terms, the seller arranges insurance, but risk transfers to the buyer upon delivery to the first carrier.
Therefore, if an incident occurs during transit, in practice the buyer often files insurance claims directly with the insurer.
Also, even with ICC-A coverage, not all damages are necessarily covered. Issues like poor packing, delays, inherent nature of the goods, and normal quality deterioration may be excluded.
The insurance obligation under CIP seeks broad coverage, but does not automatically cover every risk for specific cargo types. For high-value, special, temperature-controlled cargo, or L/C transactions, the buyer should consider purchasing additional insurance.
Summary
CIP terms require the seller to bear transportation and insurance costs to the designated place, but risk transfers to the buyer upon delivery to the first carrier.
According to Incoterms 2020, CIP generally requires insurance coverage equivalent to ICC-A, representing a broader standard than CIF’s ICC-C level.
However, even with ICC-A level coverage, not all damages are covered. Packing defects, delays, intrinsic cargo characteristics, temperature control conditions, and additional risks for special cargo should be confirmed case by case.
Buyers should verify the scope of insurance coverage arranged by the seller, including insured amounts, insured party, endorsements, and consistency with L/C terms, and consider additional insurance if gaps exist.
