Incoterms and marine cargo insurance: who insures each shipment
What Incoterms decide and what they do not
Incoterms are 11 three-letter trade terms published by the International Chamber of Commerce. The current edition is Incoterms 2020. Each rule sets who arranges carriage, who pays which costs, who clears customs, and where risk of loss or damage passes from seller to buyer.
Incoterms do not transfer title. They do not set the price or the payment terms. They do not decide which law governs the contract. They say nothing about the quality of goods. A sale contract that names an Incoterm still needs those terms written separately.
On insurance, the rules are narrow. CIF and CIP require the seller to buy cargo insurance for the buyer's benefit. Every other rule is silent. Silence does not mean the goods are insured. It means the party carrying the risk on each leg decides for itself.
Older terms still appear in contracts. DAF, DES, DEQ and DDU were dropped in Incoterms 2010, and DAT became DPU in 2020. A trader receiving one of these should ask for a 2020 rule.
Incoterms and cargo insurance: all 11 rules in one table
| Rule | Risk passes to buyer | Insurance obligation | Who in practice insures the main carriage |
|---|---|---|---|
| EXW | At seller's premises, before loading | None | Buyer |
| FCA | When delivered to buyer's carrier at the named place | None | Buyer |
| CPT | When handed to the first carrier | None | Buyer |
| CIP | When handed to the first carrier | Seller insures to Institute Cargo Clauses (A) level | Seller, for buyer's benefit |
| DAP | At the named destination, on the arriving vehicle, not unloaded | None | Seller |
| DPU | At the named destination, unloaded | None | Seller |
| DDP | At the named destination, import cleared, not unloaded | None | Seller |
| FAS | Alongside the vessel at the port of shipment | None | Buyer |
| FOB | When goods are on board the vessel | None | Buyer |
| CFR | When goods are on board the vessel | None | Buyer, though seller pays freight |
| CIF | When goods are on board the vessel | Seller insures to Institute Cargo Clauses (C) level as the default | Seller, for buyer's benefit |
The C rules separate cost from risk. Under CFR and CPT the seller pays freight but risk passes at shipment, so the buyer insures the sea leg.
CIF vs CIP: the level of cover differs
Both rules put the insurance duty on the seller. The minimum level differs, and Incoterms 2020 widened the difference.
Under CIF, the ICC states that Institute Cargo Clauses (C) remains the default level of cover. ICC(C) is named perils only: fire, explosion, vessel stranding or sinking, collision, general average sacrifice and jettison. Theft, water damage, rough handling and container drop are not covered. CIF is intended for sea freight and is common in bulk commodity trades where (C) cover matches the loss profile.
Under CIP, Incoterms 2020 requires the seller to insure to Institute Cargo Clauses (A) level or similar clauses. ICC(A) is all risks of physical loss or damage, subject to the standard exclusions. CIP is the rule for containerised and multimodal shipments.
The practical problem for a buyer under CIF is that the seller buys the cheapest compliant policy. ICC(C) cover on a container of electronics leaves most realistic losses uninsured. The buyer has 3 options.
- Negotiate CIP instead of CIF.
- Keep CIF but write "insurance to ICC(A)" into the sale contract.
- Accept CIF and buy a top-up policy from ICC(C) to ICC(A) under its own open cover.
The seller must also insure for at least 110% of the contract price in the currency of the contract under both rules, which matches the letter of credit rule below.
What the bank needs to see on the insurance certificate
When a letter of credit calls for an insurance document, UCP 600 Article 28 governs it. The document must be issued and signed by an insurer, an underwriter or their agent. Cover notes are not accepted. The date must be no later than the shipment date unless the document shows cover from that date.
Article 28(f)(ii) sets the amount. If the credit does not state one, the minimum is 110% of the CIF or CIP value of the goods. On a US$100,000 CIF invoice the certificate must show at least US$110,000. ICC opinions confirm that 110% is a floor with no stated ceiling, so a round figure above the minimum is acceptable. Rounding down below 110% is a discrepancy.
The certificate must also match the credit on currency, the risks named, the voyage and the goods description. A certificate showing "ICC(C)" against a credit requiring "all risks" is a discrepancy. Each discrepancy gives the bank grounds to refuse documents or charge a discrepancy fee.
For a Singapore exporter on CIF or CIP terms, the broker issues certificates under the exporter's open cover shipment by shipment. The certificate shows the assured, the voyage, the sum insured at 110%, the clauses and the claims-payable location, which should be the buyer's country.
Why the carrier's liability is not insurance
Shippers sometimes rely on the carrier's liability instead of insurance. The Carriage of Goods by Sea Act gives effect to the Hague-Visby Rules in Singapore. Under Article IV rule 5, the carrier's liability is capped at 666.67 units of account per package or 2 units of account per kilogramme of gross weight, whichever is higher. The unit of account is the Special Drawing Right.
A 1,000 kg pallet of pharmaceuticals worth S$200,000 recovers at most 2,000 SDR from the carrier, under 2% of its value at current exchange rates. The carrier also has defences, including error in navigation and fire not caused by its own fault. Recovery takes months and requires proof that the loss happened in the carrier's custody.
Cargo insurance pays the insured value once the loss is documented, then pursues the carrier itself by subrogation. The insured does not fund that recovery.
The exposure on land is not smaller. The fatal and major injury rate in Singapore's Transportation and Storage sector rose from 18.4 per 100,000 workers in 2024 to 23.8 in 2025. Accidents that injure drivers and warehouse staff also damage the goods they are moving.
Choosing the term with insurance in mind
A Singapore company can use Incoterms to decide who insures, not only who pays freight.
- Buying: prefer FCA or FOB and insure under your own open cover. You control the clauses, the claims-payable location and the insurer's rating.
- Selling to a buyer who wants door delivery: prefer DAP or DPU, insure the whole journey yourself, and price the premium into the goods.
- Selling under a letter of credit that requires an insurance document: use CIP, not CIF, unless the goods suit ICC(C).
- Buying under CIF: ask for the certificate before shipment and read the clauses on it.
- Under EXW: insure from the seller's warehouse door. The buyer carries the loading risk, which is where forklift damage happens.
A broker places an open cover that attaches wherever the Incoterm puts the risk, so the trader does not re-read the table on every shipment. The marine cargo page lists what an open cover needs, and the Institute Cargo Clauses explainer sets out (A), (B) and (C).
Frequently asked questions
Under FOB, who insures the goods on the ship?
The buyer. Under FOB risk passes when the goods are on board the vessel at the port of shipment. The seller has no insurance obligation. A buyer without its own cargo policy carries the sea leg uninsured, with recovery from the carrier capped under the Hague-Visby Rules.
Is CIF insurance enough for high-value electronics?
Usually not. The CIF default is Institute Cargo Clauses (C), which covers named perils such as fire, sinking and collision but not theft, water damage or handling damage. Electronics need ICC(A). Negotiate CIP, specify ICC(A) in the contract, or buy a top-up under your own policy.
Can the buyer insure under EXW before the goods leave the seller's warehouse?
Yes. Under EXW risk passes when the goods are made available at the seller's premises, before loading. The buyer has an insurable interest from that point. An open cover with a warehouse-to-warehouse clause attaches there.
What does the bank need to see on the insurance certificate?
Under UCP 600 Article 28, a document issued and signed by an insurer or its agent, dated no later than shipment, in the credit's currency, for at least 110% of the CIF or CIP value, and showing the risks the credit names. Cover notes are not accepted.
Sources
General information only, not advice on any particular policy. Cover depends on the policy wording and the insurer's terms.