Incoterm CIP Explained: Insurance, Risk and Responsibilities in International Trade
For most Incoterms, insurance is an optional choice for the buyer or seller. The Incoterm CIP works differently. Carriage and Insurance Paid To (CIP) includes insurance directly in the agreement and explicitly places this obligation on the seller.
Under CIP, the seller arranges and pays for both transportation and all-risk insurance up to the agreed destination. However, the risk transfers much earlier to the buyer: as soon as the goods are handed over to the first carrier.
This difference between the moment when risk transfers and the moment when cost responsibility ends is one of the most misunderstood aspects of CIP Incoterms.
In this article, we explain what CIP means, what the insurance obligation entails, how responsibilities are divided between buyer and seller, and when Incoterm CIP is the right choice for your shipment.
What is the Incoterm CIP?
CIP stands for Carriage and Insurance Paid To. It is one of the 11 trade rules within Incoterms 2020, published by the International Chamber of Commerce (ICC). In Dutch, CIP is known as “Vracht en Verzekering Betaald Tot”.
CIP can be used for all forms of transportation, including road, rail, air, and sea freight. This makes the Incoterm suitable for container transport and multimodal transport.
Under CIP, the seller arranges and pays for transportation to the agreed destination. In addition, the seller handles all export formalities and export documents. The agreed destination may be the buyer’s premises, a distribution center, a port, an airport, or another location in the country of destination.
CIP is mainly used for container shipments and multimodal transport. For container cargo, it is the recommended choice over CIF, because CIF applies exclusively to sea transport.
Always clearly state the exact agreed destination in the sales contract. This determines exactly where the seller’s cost responsibility ends.
The Insurance Obligation Under CIP: What Must the Seller Arrange?
CIP is one of only two Incoterms 2020 rules under which the seller is required to arrange insurance for the buyer. The other is CIF. However, CIP sets a significantly higher standard.
Under CIP, the seller must obtain insurance based on Institute Cargo Clauses (A), which provides all-risk coverage. Under CIF, the seller only has to arrange minimum coverage based on ICC Clause C, which covers far fewer risks.
As a result, CIP is the safer and more protective choice for buyers who want insurance included as part of the transaction.
What Must CIP Insurance Cover?
- Minimum coverage: Institute Cargo Clauses (A) with all-risk coverage
- Minimum insured value: at least 110% of the contract value
- The insurance policy must be issued in the name of the buyer or another party with an insurable interest in the goods
- Coverage must run from the place of delivery to at least the agreed destination
- The seller must provide the buyer with the insurance certificate so that the buyer can file a claim directly with the insurer in case of damage or loss
What Is Not Covered by ICC Clause A?
- Damage caused by war, strikes, or riots. Additional insurance is required for these risks
- Damage resulting from inherent defects of the goods
- Loss or damage caused by delay during transport
If the buyer believes the standard coverage is insufficient, the parties may agree on additional coverage before signing the contract. Buyer and seller may also mutually agree on more limited coverage.
However, ICC Clause A all-risk coverage remains the standard under CIP, and any deviations must be clearly specified in the sales contract.
Risk and Cost Transfer Under CIP: Two Different Moments
One of the most misunderstood aspects of Incoterm CIP is the moment when risk actually transfers. Because the seller pays for both transportation and insurance up to the final destination, many traders assume the risk remains with the seller until the goods arrive. This is incorrect and can lead to costly disputes.
Risk transfers at the place of delivery. This occurs when the seller hands over the goods to the first carrier, usually at the seller’s premises, a warehouse, port, or airport terminal in the country of export.
From that moment onward, the buyer bears the full risk of loss or damage throughout the entire journey. Although the seller pays for transportation and insurance that cover this risk, the risk itself belongs to the buyer from that point forward.
Costs transfer at the agreed destination. The seller pays all transportation and insurance costs up to the named destination. Once the goods arrive, the buyer pays all further costs, including unloading, import customs clearance, import duties, and any onward transportation.
Always clearly state the exact delivery point within the agreed destination in the sales contract. This determines precisely where the seller’s cost responsibility ends.
Responsibilities of the Seller and Buyer Under CIP
Under CIP, both parties have clearly defined responsibilities. The seller assumes more responsibility than under any other multimodal Incoterm because they arrange and pay for both transportation and insurance.
Understanding these responsibilities before signing a contract helps prevent costly disputes and unexpected costs.
| Responsibility | Seller | Buyer |
|---|---|---|
| Export packaging and marking | ✅ | ❌ |
| Export customs clearance and permits | ✅ | ❌ |
| Delivering goods to the first carrier | ✅ | ❌ |
| Arranging and paying transportation to the agreed destination | ✅ | ❌ |
| Obtaining ICC Clause A all-risk insurance for the buyer | ✅ | ❌ |
| Providing the insurance certificate to the buyer | ✅ | ❌ |
| Informing the buyer once goods have been handed over to the carrier | ✅ | ❌ |
| Import customs clearance and import duties | ❌ | ✅ |
| Unloading at the agreed destination | ❌ | ✅ |
| Transportation beyond the agreed destination | ❌ | ✅ |
The seller maintains full control over transportation and insurance from origin to the agreed destination. However, the risk leaves the seller as soon as the goods are handed over to the first carrier, considerably earlier than the final destination.
The seller must inform the buyer promptly once delivery to the carrier has taken place so that the buyer knows the risk has transferred.
The buyer is fully responsible from the agreed destination onward. This includes unloading costs, import customs clearance, import duties, and any onward transportation to the final location.
Although the seller arranges the insurance, the policy is issued in the buyer’s name. This means the buyer can submit a claim directly to the insurer without involving the seller.
CIP Compared with CPT, CIF and DAP
CIP is most often compared with CPT, CIF, and DAP because under all four rules the seller arranges transportation to a named destination. Understanding the key differences helps you choose the right Incoterm and avoid unexpected gaps in insurance or risk coverage.
CIP vs. CPT: The Insurance Difference
CIP and CPT are identical in structure. Under both arrangements, the seller arranges and pays for transportation to the agreed destination. The only difference is insurance.
Under CPT, the seller is not required to arrange insurance. The buyer must obtain coverage after the risk has transferred. Under CIP, the seller must obtain ICC Clause A all-risk insurance for at least 110% of the contract value in the buyer’s name.
Anyone who wants insurance protection as part of the transaction should clearly choose CIP.
CIP vs. CIF: All Transport Modes and Higher Insurance Coverage
Both CIF and CIP require the seller to obtain insurance, but they differ in two ways. CIF applies only to sea and inland waterway transport, while CIP applies to all transport modes, including road, rail, air, and container sea freight.
CIF requires minimum coverage based on ICC Clause C, whereas CIP requires all-risk insurance based on ICC Clause A. For container shipments, CIP is always the correct choice over CIF.
CIP vs. DAP: Who Bears the Risk During Transportation?
Under both CIP and DAP, the seller arranges and pays for transportation to the agreed destination. The key difference lies in risk transfer.
Under CIP, risk transfers when the goods are handed over to the first carrier in the seller’s country. Under DAP, risk remains with the seller until the goods arrive at the named destination.
Buyers who want the seller to retain the risk throughout the entire journey should choose DAP.
When Should You Use the Incoterm CIP?
CIP is most suitable when both parties want a single trade rule that includes both transportation and insurance.
It is a good choice for container shipments and multimodal transport. CIP is also well suited for buyers who do not have their own cargo insurance and prefer the seller to arrange it.
Experienced exporters often choose CIP because it gives them full control over transportation and insurance, while also simplifying the documentation required for a Letter of Credit.
If the buyer already has their own insurance policy, CPT is the better option. If the buyer wants the seller to carry the risk throughout the entire journey, choose DAP.
CIP Shipment from the Netherlands? Engage a Customs Expert
Under CIP, the seller is responsible for all export customs clearance and export documentation. This includes export licenses, security checks, and pre-shipment inspections.
Mistakes during export customs clearance can delay the entire shipment before the goods even reach the carrier. For Dutch exporters, all customs declarations and documents must be handled correctly before the goods leave the Netherlands.
Are you looking for a reliable and AEO-certified customs service provider in the Netherlands? The Customs Company takes all CIP export customs obligations off your hands.
With direct connections to Dutch Customs and Portbase, and 24/7 support, your CIP customs clearance is handled correctly and on time every time.
Frequently Asked Questions
1: What insurance must the seller arrange under CIP?
Ans: The seller must obtain ICC Clause A all-risk insurance for at least 110% of the contract value in the buyer’s name.
2: When does risk transfer from seller to buyer under CIP?
Ans: Risk transfers when the goods are handed over to the first carrier, not when they arrive at the destination.
3: What is the difference between CIP and CIF?
Ans: CIP applies to all transport modes and requires stronger ICC Clause A insurance coverage. CIF applies exclusively to sea transport.
