Question

Please explain to me what kind of insurance coverage is needed under CIF and CIP incoterms rules when trading goods. Do they cover all the risks? or are there any risks they don't cover? How can importers protect them selves from the uncovered risks? I would like to understand this issue.

Answer 1

CIF: CIF is nothing but Cost, insurance Freight. Which means when seller quotes price it includes insurance and all other charges. Hence seller has to make insurance of goods for buyer against any transit damage. For example, let us assume that a vendor in china has agreed to sell clothes to Walmart and entered contact under CIF. The vendor has to pay insurance and all other costs like freight cost etc and deliver to agreed port. Once goods is unloaded, vendor’s responsibility is completed.

In CIF type of incoterms, seller has to buy damage or loss insurance for buyer upto agreed port

CIP (Carriage and insurance paid): In this type of agreement, seller pays freight and insurance cost to deliver goods to a seller appointed party at agreed location. For example consider the same example of vendor selling goods from china to Walmart. Here vendor has to pay all insurance and freight charges upto location agreed. Once goods is unloaded at agreed place, person nominated by Walmart would be responsible for the goods.

In CIP, seller has to buy damage/loss insurance up to agreed place.

No, CIP and CIF does not cover all the risk. It only cover for damage or loss of goods. If shipment is delayed due to unknown reason, it is not covered by these insurance. Importer can protect from these risk by buying specific insurance.