Incoterms Insurance Gap: Why Nobody Insured Your Cargo

Your cargo is on the water. But who insured it? In most international shipments, the answer might surprise you. Only 2 of the 11 Incoterms require either party to arrange cargo insurance: CIF and CIP. The other 9, including FOB — the most common term for ocean freight — leave insurance entirely optional. And even when CIF requires insurance, the coverage is minimal. This guide explains which Incoterms require insurance, what CIF's minimum coverage actually protects, and how to make sure your shipment isn't sailing uninsured.

Do Incoterms Require Cargo Insurance?

Most do not. According to Chubb's Institute Cargo Clauses guide, Incoterms place no insurance obligation on the seller or buyer — except under CIF and CIP. That means 9 of the 11 Incoterms have zero insurance requirements for either party. This includes FOB, FCA, CFR, EXW, DAP, DDP, DPU, FAS, and CPT.

This does not mean insurance is unimportant. It means neither the buyer nor the seller is contractually required to arrange it. Risk still transfers at a specific point under each Incoterm. Someone still bears the financial loss if cargo is damaged or lost. But arranging insurance to cover that risk is each party's own decision.

The practical result: if both parties assume the other one handled insurance, nobody did. This is one of the most common and costly oversights in international trade.

What Happens to Insurance Under FOB?

Under FOB (Free On Board), the seller's risk ends when the goods are loaded onto the vessel. From that point, the buyer bears all risk — loss, damage, and delay during the ocean voyage. But FOB does not require the buyer to purchase insurance.

According to the Incoterms 2020 rules published by the ICC (International Chamber of Commerce), insurance under FOB is the buyer's decision, not an obligation. The same applies to CFR (Cost and Freight). The seller pays for freight under CFR but has no insurance requirement.

This creates a common scenario. The buyer carries all the risk during the main voyage but may not have arranged any coverage. Many buyers assume the seller's freight forwarder included insurance. Many sellers assume the buyer handles it on their end. Neither is required to verify.

What Does CIF Insurance Actually Cover?

CIF (Cost, Insurance and Freight) does require the seller to arrange cargo insurance. But the required level is ICC Clause C (Institute Cargo Clauses C) — the narrowest standard marine cargo coverage available.

According to the ICC's Incoterms 2020 rules, the seller must provide insurance at a minimum of 110% of the invoice value, under Institute Cargo Clauses (C). This coverage protects against only seven named perils:

• Fire or explosion

• Vessel being stranded, grounded, sunk, or capsized

• Overturning or derailment of land conveyance

• Collision with any external object other than water

• Discharge of cargo at a port of distress

• General average sacrifice

• Jettison

If the loss does not match one of these seven events, it is not covered.

What ICC(C) does not cover is arguably more important: theft at port, water damage inside the container, cargo dropped during loading or unloading, earthquakes, volcanic eruptions, and lightning. According to Sedgwick's marine insurance analysis, many of these excluded perils represent frequent causes of cargo loss in practice.

What Is the Difference Between ICC(A), ICC(B), and ICC(C)?

The Institute Cargo Clauses come in three levels. They are published by the International Underwriting Association of London and used globally as the standard framework for marine cargo insurance.

ICC(C) is the most restrictive. It covers only the seven catastrophic perils listed above. Theft, water damage, and most natural disasters are excluded.

ICC(B) adds more named perils. In addition to everything in ICC(C), it covers earthquakes, volcanic eruptions, lightning, washing overboard, seawater entry into the vessel, and cargo dropped during loading or unloading. It is still a "named perils" policy — only listed events are covered.

ICC(A) is "all risks" coverage. It covers all accidental loss or damage during transit, except for a short list of exclusions: willful misconduct, inherent vice, insufficient packing, and delay. Theft, pilferage, and non-delivery are covered only under ICC(A).

CIF requires ICC(C). CIP requires ICC(A) since Incoterms 2020. The gap between the two levels represents a major difference in protection — and many traders do not realize CIF's coverage sits at the bottom of the scale.

Why Did Incoterms 2020 Change CIP but Not CIF?

In 2020, the ICC upgraded CIP's minimum insurance requirement from ICC(C) to ICC(A) — all risks coverage. But CIF's requirement stayed at ICC(C).

According to the ICC, this decision reflected how each term is typically used. CIF is most common in bulk commodity trades — oil, grain, coal — where values per unit are lower and the goods are less susceptible to handling damage. CIP is used for containerized and multimodal shipments, where higher-value goods face more varied risks during transit.

But many traders use CIF for containerized cargo despite the ICC's recommendation to use CIP instead. When they do, the default insurance level remains at ICC(C) — minimum coverage designed for bulk commodities, applied to containers full of electronics, textiles, or machinery.

How Should You Handle Cargo Insurance in Practice?

First, check which Incoterm applies to your shipment. If it is anything other than CIF or CIP, no insurance is required by default. You need to arrange it yourself.

Second, if you are buying under CIF, do not assume "insured" means "fully covered." Ask for the insurance certificate and check the clause. ICC(C) covers only catastrophic events. If you need broader protection — and most manufactured goods do — negotiate ICC(A) in your sales contract or arrange your own supplementary policy.

Third, consider using CIP instead of CIF for containerized shipments. CIP requires ICC(A) by default. It covers theft, water damage, and handling losses. The ICC recommends CIP over CIF for container cargo for exactly this reason.

Finally, document your insurance arrangements in the sales contract. Do not rely on assumptions. Specify the clause level, the coverage amount (at least 110% of invoice value), and which party arranges it.

Cargo Insurance Checklist

• FOB, CFR, FCA, and 6 other Incoterms: no insurance obligation for either party

• CIF: seller insures at ICC(C) minimum — 7 named perils only

• CIP: seller insures at ICC(A) all risks — upgraded in Incoterms 2020

• ICC(C) gaps: does not cover theft, water damage, handling loss, or natural disasters

• Sales contract: always specify insurance clause level and responsible party

• Container shipments: consider CIP over CIF for broader default coverage

Frequently Asked Questions

Does FOB require the buyer to insure the cargo?

No. Under FOB, the buyer bears risk from the point of loading, but insurance is optional. Neither the seller nor the buyer is required to arrange coverage under FOB.

What does CIF insurance cover?

CIF requires ICC Clause C, which covers seven named perils: fire, explosion, sinking, grounding, collision, jettison, and discharge at a port of distress. Theft, water damage, and handling losses are not covered.

What is the difference between ICC(A) and ICC(C)?

ICC(A) is "all risks" coverage that protects against almost all accidental loss or damage. ICC(C) covers only seven catastrophic perils. Theft, water damage, natural disasters, and cargo dropped during loading are covered under ICC(A) but not under ICC(C).

Which Incoterms require cargo insurance?

Only CIF and CIP. The other nine Incoterms — including FOB, FCA, CFR, EXW, and DAP — have no insurance requirement for either party.

Should I use CIF or CIP for container shipments?

The ICC recommends CIP for containerized cargo. CIP requires ICC(A) all-risks coverage by default, while CIF only requires ICC(C) minimum coverage. CIP also works for multimodal transport, while CIF is limited to sea and inland waterway.