Insurance obligation

Definition and principle

The insurance obligation under Incoterms refers to the seller's obligation to procure transport insurance for the buyer's benefit to cover goods during main carriage. Among the 11 Incoterms 2020, only CIF and CIP impose this obligation on the seller.

Legal framework

Incoterms 2020 from the ICC define insurance obligations in section A5/B5 of each term. Transport insurance clauses are standardised by the Institute of London Underwriters (ILU) and designated as Institute Cargo Clauses (ICC — not to be confused with the International Chamber of Commerce). There are three levels: ICC (A) (all risks), ICC (B) (intermediate named risks), and ICC (C) (restricted named risks).

Required coverage levels

• CIP (Incoterms 2020): the seller must procure insurance compliant with ICC (A) — all risks — unless otherwise agreed. This is a major change from Incoterms 2010 where the minimum coverage was ICC (C)
• CIF (Incoterms 2020): the seller is only required to procure minimum ICC (C) coverage — unless otherwise agreed
• Coverage must be at least 110% of the CIF/CIP value of the goods
• Insurance must be denominated in the same currency as the contract

Key considerations

• With other Incoterms (EXW, FCA, FOB, CFR, CPT, DAP, DPU, DDP), no insurance obligation is imposed by the term itself — it is up to each party to assess their interest in insuring
• The coverage difference between CIP (ICC A) and CIF (ICC C) is an important Incoterms 2020 change that many operators are still unaware of
• Insurance procured by the seller under CIF/CIP covers the buyer during transport but does not cover risks before delivery (already the seller's responsibility) or after the buyer takes possession