CIP (Carriage and Insurance Paid To): Insurance, Risk, Costs

CIP under Incoterms 2020: the seller pays freight and must insure at Institute Cargo Clauses (A) level for 110%. Costs, documents, an example and CIP vs CIF.

CIP, Carriage and Insurance Paid To, is the Incoterms® 2020 rule in which the seller pays the carriage to an agreed destination and also insures the goods for the buyer's benefit during that carriage. Risk still passes to the buyer at origin, when the goods are handed to the first carrier, exactly as under CPT. The difference is that if something goes wrong in transit, the buyer has a ready-made insurance policy to claim under.

The 2020 edition made CIP considerably more protective by raising the minimum cover to all-risks level. This lesson explains that obligation precisely, the cost split, the documents and how CIP differs from CIF.

When should you use CIP?

CIP suits any mode of transport: air freight, road, rail, containers by sea and multimodal journeys. Use it when:

• the buyer wants a price that includes freight and insurance to its country;
• the goods travel in containers or by air, where CIF would put the risk point in the wrong place;
• the payment terms, such as a letter of credit, call for an insurance document;
• the journey is multimodal and ends inland, for example a port followed by a truck to a landlocked country.

Do not use CIP if the buyer's country requires imports to be insured with a local insurer, as some countries do: use CPT and let the buyer insure. And if the buyer expects you to bear the transit risk, use a D rule.

Where does delivery happen and when does risk pass?

As with CPT, the seller delivers by handing the goods to the carrier it has contracted with, at the agreed place and date. Risk passes then. The named place in the term is the destination to which freight and insurance are paid. On a multi-leg journey, specify the delivery point if you want risk to pass later than the first carrier.

What insurance does the seller have to buy under CIP?

This is the heart of the rule. Unless the parties agree otherwise, the seller must obtain, at its own cost, cargo insurance that:

1. complies with Institute Cargo Clauses (A) or similar clauses suited to the mode of transport, which is all-risks cover subject to the listed exclusions (the air equivalent is the Institute Cargo Clauses (Air));
2. is placed with insurers of good repute;
3. covers at least 110% of the contract price, the extra 10% reflecting the buyer's expected profit;
4. is in the currency of the contract;
5. runs from the point of delivery to at least the named place of destination;
6. allows the buyer, or anyone with an insurable interest, to claim directly from the insurer.

The seller must give the buyer the policy, certificate or other evidence of cover. At the buyer's request and cost, the seller must also buy additional cover, such as war or strikes clauses, if it can be obtained. Read cargo insurance for what the (A), (B) and (C) clauses actually cover.

Who pays what under CIP?

Documents and payment

The seller provides the usual transport document for its carriage (air waybill, multimodal bill of lading, road consignment note, rail note) plus the insurance certificate or policy. With a letter of credit, CIP is a comfortable rule because the seller controls both documents. Under UCP 600, check three details:

• the insurance document must be issued by an insurer, underwriter or their agent; cover notes are not accepted;
• if the credit does not state an amount, cover must be at least 110% of the CIF or CIP value;
• the insurance must be effective no later than the date of shipment.

Worked example: PVC pipes from Oran to Bamako

An Oran manufacturer sells two 40-foot containers of PVC pipes to a building supplies importer in Mali, CIP Bamako, buyer's depot, Incoterms® 2020. The containers go by sea from Oran to Dakar and then by truck to Bamako on a single multimodal contract.

Risk passes at the Oran terminal. During the road leg, the truck brakes hard, the load shifts and 30% of the pipes are broken. The buyer claims under the Clauses (A) policy, for 110% of the value of the broken pipes, and the insurer pays. Under the minimum Clauses (C), the claim would have depended on the exact cause: an overturned truck is covered, but shifting cargo, theft, rough handling and many other losses are not.

CIP compared with CPT and CIF

See CIF for the sea-only version and the Incoterms matrix for all eleven rules.

Common mistakes with CIP

• Buying Clauses (C) out of habit: that was enough under Incoterms 2010, not under 2020. If you want lower cover, write it into the contract.
• Cover ending at the port when the named destination is inland.
• Insuring in the wrong currency, such as euros for a dollar contract.
• An insurance certificate dated after the transport document, a classic letter of credit discrepancy.
• Forgetting that CIP insurance protects the buyer: the seller still needs its own cover for the risk it bears before delivery.