Published 18 October 2026 · By the Rateshwar General Insurance team, Oshiwara, Mumbai
Every import or export contract has an Incoterm, such as CIF, FOB or EXW. Most people think of it as a pricing term, but it also decides two things that matter for insurance: who has to buy cargo insurance, and at what point the risk of loss passes from the seller to the buyer.
The short answer
- CIF (Cost, Insurance and Freight) and CIP (Carriage and Insurance Paid): the seller buys insurance for the buyer's benefit.
- FOB (Free on Board), FCA (Free Carrier) and EXW (Ex Works): the buyer arranges insurance.
- DAP, DPU and DDP: the seller carries the risk until the goods are delivered at destination, so the seller normally insures.
The CIF trap for importers
Under Incoterms® 2020, a seller selling on CIF terms only has to buy the minimum level of cover, Institute Cargo Clauses (C), for 110% of the contract value. Clauses (C) covers major events such as fire, sinking and collision, but not theft, rain damage or most handling damage. Under CIP the seller has to buy Institute Cargo Clauses (A), which is much wider.
Also, under CIF the risk passes to the buyer once the goods are loaded on the ship at the port of shipment. If the goods are damaged at sea, the importer has to claim on a policy that someone else bought, usually from an insurer in another country. Many Indian importers therefore buy on FOB terms and arrange their own cover in India, or add their own policy on top of the seller's.
The FOB gap for exporters
On an FOB sale, the buyer's insurance usually starts only when the goods are loaded on the vessel. The journey from your factory to the port, including the container freight station, is your risk as the exporter. A truck accident on the way to the port is not covered by the buyer's policy. Exporters can close this gap with an inland transit policy or a seller's interest cover.
What to check before you ship
- Which Incoterm is in the contract, and at which point the risk passes.
- Who is buying the insurance, and under which Institute Cargo Clauses: (A), (B) or (C).
- Whether the cover is warehouse-to-warehouse, or only port-to-port.
- The sum insured. The usual practice is the CIF value plus 10%.
- Whether the policy, or a certificate under an open policy, will reach the party who may need to claim.
If you are not sure which cover you have, send us the contract or proforma invoice. We will tell you where your risk starts and ends, and whether you need extra cover.