FOB vs CIF Insurance: Why CIF Coverage May Not Protect Your Cargo

You buy CIF and assume insurance is covered. Six weeks later, your cargo is stolen at the destination port. You file a claim. Denied.

This guide explains the insurance requirements under FOB and CIF, what's actually covered, and when you need to arrange your own policy.

Who is responsible for insurance under FOB?

Neither party is required to arrange insurance under FOB. According to the International Chamber of Commerce (ICC) Incoterms 2020 rules, FOB (Free on Board) only defines the point of risk transfer — when goods are loaded on board the vessel. Insurance is not mentioned as an obligation for either the seller or the buyer.

This creates a gap many buyers overlook. Risk transfers to the buyer the moment goods are loaded on board. From that point forward, any loss or damage is the buyer's problem — whether insured or not.

According to Astute Analytica's 2024 report, uninsured cargo losses in the manufacturing sector alone average $2 billion annually.

What insurance does the seller provide under CIF?

CIF requires the seller to provide minimum insurance coverage — ICC C (Institute Cargo Clauses C) at 110% of invoice value. This is the baseline, not comprehensive protection. Under Incoterms 2020, CIF sellers are only obligated to secure the most basic level of marine cargo insurance.

According to the ICC Incoterms 2020 rules, ICC C covers only major incidents:

• Fire and explosion

• Vessel sinking, stranding, or capsizing

• Collision

• General average sacrifice

• Jettison (cargo thrown overboard to save the ship)

This is why ICC C is sometimes called "catastrophic coverage." It protects against total loss from major accidents, not partial damage from everyday shipping hazards.

What is NOT covered under CIF insurance?

Theft, water damage, rough handling, and natural disasters are excluded from ICC C coverage. These are among the most common causes of cargo damage, yet CIF's minimum insurance doesn't protect against them.

According to Tata AIG and ICICI Lombard, ICC C does not cover:

• Theft and pilferage — cargo stolen at ports, terminals, or during transit

• Water damage — rain, seawater, or condensation

• Rough handling — damage from loading, unloading, or stacking

• Natural disasters — earthquakes, lightning, volcanic eruptions, severe storms

• Non-delivery — cargo that never arrives

According to CargoNet data cited by Risk Strategies, the average stolen shipment value reached $281,757 per incident in Q1 2024 — more than double the previous year. None of these losses would be covered under standard CIF terms with ICC C coverage.

What is the difference between ICC A, ICC B, and ICC C?

ICC A provides "all risks" coverage, ICC B covers named perils including some natural disasters, and ICC C covers only catastrophic events. The Institute Cargo Clauses are published by the International Underwriting Association of London and define standard coverage levels for marine cargo insurance worldwide.

Here's how they compare:

• ICC A (All Risks): Covers virtually all external causes of loss except specific exclusions. Includes theft, water damage, rough handling, and natural disasters. Required under CIP (Carriage and Insurance Paid To) in Incoterms 2020.

• ICC B (Named Perils): Covers fire, explosion, collision, plus earthquakes, lightning, and washing overboard. Does not cover theft or rough handling.

• ICC C (Minimum Coverage): Covers only major accidents — fire, sinking, collision, stranding. The minimum required under CIF.

According to Allianz Global Corporate & Specialty (AGCS), damaged cargo is the most frequent cause of marine insurance claims. Most of these damages — handling errors, temperature variations, water exposure — fall outside ICC C coverage.

When should the buyer arrange separate insurance?

Buyers should arrange their own ICC A policy whenever cargo is high-value, theft-prone, or sensitive to handling damage. Relying on CIF's minimum coverage leaves significant gaps that can result in unrecoverable losses.

Consider arranging your own insurance when:

• Goods are attractive to theft (electronics, pharmaceuticals, consumer goods)

• Products are sensitive to temperature, moisture, or handling

• Shipping routes pass through high-risk areas

• You're shipping under FOB, CFR, or FAS (no seller insurance obligation)

• The potential loss would significantly impact your business

According to the International Union of Marine Insurance (IUMI), global cargo insurance premiums reached $22.64 billion in 2024, reflecting the scale of cargo moving under insured terms worldwide.

FOB vs CIF insurance: Quick reference checklist

• FOB: No insurance obligation for either party. Buyer assumes all risk after goods are loaded on board.

• CIF: Seller must provide ICC C minimum coverage at 110% of invoice value.

• ICC C covers: Fire, sinking, collision, stranding, general average only.

• ICC C does NOT cover: Theft, water damage, handling damage, natural disasters.

• ICC A covers: All risks except specific exclusions (theft, water damage, handling included).

• Before shipping: Request the insurance certificate and verify coverage level.

CIF includes insurance. But "included" doesn't mean "complete." Always verify what's covered before your cargo leaves port.